A PROJECT REPORT ON

“A

STUDY ON PUBLIC DISTRIBUTION SYSTEM WITH SPECIAL
REFRENCE TO KEROSENE"
SUBMITTED BY
KHAN ARMAN KHALIL
FOR THE DEGREE OF
THE BACHELOR OF MANAGEMENT STUDIES
UNIVERSITY OF MUMBAI
UNDER THE GUIDANCE OF

PROF. Mr. ‘ANIL GAYAKWARD’
B.G.P.S.’ MUMBAI COLLEGE OF ARTS, COMMERCE AND
SCIENCE
WADALA (EAST), MUMBAI – 400037

ACADEMIC YEAR 2016-2017

SEAT NO: 1315655

DECLARATION

I, KHAN ARMAN KHALIL, studying in the Third Year of Bachelor of
Management Studies course in the academic year 2016-17 at B.G.P.S.’MUMBAI
COLLEGE OF ARTS, COMMERCE AND SCIENCE WADALA (EAST), hereby
declare that I have completed the project titled “A STUDY ON PUBLIC

DISTRIBUTION SYSTEM WITH SPECIAL REFRENCE TO
KEROSENE” as a part of the course requirements of Bachelor of Management
Studies of University of Mumbai.

I further declare that the information presented in this project is true and
original to the best of my knowledge.

Date:
Place: Mumbai

Arman khan

CERTIFICATE
I, Prof. Mr. Anil Gayakward, hereby certify that, KHAN ARMAN KHALIL
studying in the Third Year of Bachelor of Management Studies course at the
B.G.P.S.’ MUMBAI COLLEGE OF ARTS, COMMERCE AND SCIENCE
WADALA (EAST), has completed a project on “A STUDY ON PUBLIC
DISTRIBUTION SYSTEM WITH SPECIAL REFRENCE TO KEROSENE”
under my guidance in the academic year 2014-15.
I further declare that the information presented in this project is true and original to
the best of my knowledge.

Date:
Place: Mumbai

Coordinator’s Signature

(Prof. Mr. Anil Gayakward)

(Prof. Ms. Draksha khan)

Examiner’s Signature & Date

PRINCIPAL
(Dr. CHANDRAKANT.S.GHABAK)

College Seal

ACKNOWLEDGEMENT

In making this project report a lot of people have contributed by giving me the
required knowledge and time, I would like to thank all of them.
My special thanks to Dr. CHANDRAKANT.S.GHABAK, Ms. Draksha khan and
supporting staff.
It is because of their assistance and competence that I have reached this milestone.
I would like to express my gratitude and sincere thanks to my Project Guide Prof.
Mr. Anil Gayakward, for instilling confidence in me to carry out this study and
extending valuable guidance and encouragement from time to time, without which
it would not have been possible to undertake and complete this project.
I also wish to extend my appreciation to the management and staff of my college,
especially our principal Dr.C.S.GHABAK, for their kind co-ordination and support.
And last but not the least my colleagues for their valuable comments and
suggestions for making this a cherishable experience for me.

Khan Arman Khalil

Date:-20thjune 2016

TO WHOM IT MAY CONCERN
This is to certify that Mr. Arman khan, S/O- Mr. Khalil khan,
from 15thapril 2016 to 14thjune 2016 long internship in this
organization. His internship activity includes manage and
supervision the work from the office. He had majorly
involved in an activity of project management and
inventory management. During the period of his internship
with us he had been exposed to different process was
found punctual, hardworking and inquisitive. We wish him
every success in his life and career.

Authorized signature

CONTENTS
SR. NO.

TOPIC

PAGE NO.

CHAPTER
1

1.1PROFILE OF THE COMPANY
1.2INTRODUCTION
1.3EXECUTIVE SAMMARY
1.4OBJECTIVE
1.5LIMITATION
1.6LITERATURE REVIEW
1.7Relevance of the Study
2.1 DEFINATION OF CONCEPT
2.2 PDS IN INDIA
2.3 GOALS OF PDS
2.4 PDS NETWORK
2.5 FOOD SUBSIDY
2.6 PDS SYSTEM TODAY
2.7 THE PROPOSED FOOD SECURITY ACT
2.8 PROPOSED IT BASED SOLUTION APPROACH
2.9 CATEGORIES OF PDS IN INDIA
2.10 WHAT ARE RATIONS?
3.1 PDS KEROSENE ALLOCATION and
DISTRIBUTION
3.2 RATES OF WHOLESALE & RETAIL KEROSENE
3.3 THE USE OF FOSIL-FUEL SUBSIDIES IN INDIA
3.4 THE RATIONALE FOR REFORM
3.5 REFORM STRATEGIES
3.6 LESSION LEARNED AND
FORGOTTEN
4.1 KEROSENE MARKET
4.2 KEROSENE SUBSIDIES
4.3 PDS KEROSENE (SKO)
5.1 CASE STUDY
5.2 METHODOLOGY
5.3 TOOLS FOR DATA COLLECTION
6.1 ANALYSIS AND INTERPRETATION
6.2 SWOT ANALYSIS
6.3 FINDINGS
6.4 MY LEARNING EXPERIECE
6.5 RECOMMENDATIONS
6.6 CONCLUSION
6.7 ANNEXURE/QUESTIONNAIRE
6.8 BIBLOGRAPHY

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CHAPTER
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CHAPTER
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CHAPTER
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CHAPTER
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Chapter: 1
1.1 Profile of the company
Mumbai Shahkari Ghaslet Vitran Sanstha (ltd.)
Business Information

 Business Name: Mumbai Shahkari Ghaslet Vitran Sanstha (ltd.)
 Business Address: A-5/c-15,vina-beena co-op. housing society, Acharya
Donde Marg, SEWRI,MUMBAI 400015
 Chairman: Ram Surat
 Email: msgvs.com
 Tel: 241344403
General Business Activities Mumbai Shahkari Ghaslet Vitran Sanstha (ltd.) has
been established as a Kerosene distributer agency in Hindustan petroleum in
Mumbai. Our traditional business model is based on the distribution of
kerosene under public distribution system in Mumbai. The revenues of our
company are expected to be nearly Rs 100000 per annum. There is a great
need for certified or official bank checks in the future to deal with some
kerosene’s transactions. In addition to distribution investments, the company
has invested portions of its assets in the purchase and sale of securities such as
stocks and bonds.
Company Strategy

 Purpose: To be a leader in the distribution of PDS kerosene by providing
enhanced services, relationship and profitability.
 Vision: To provide quality services that exceeds the expectations of our
esteemed customers.
 Mission statement: To build long term relationships with our company
and fixed price shops and provide exceptional customer services by
pursuing business through distribution of kerosene.

1

 Core values:• We believe in treating our customers with respect and
faith• We grow through creativity, invention and innovation.• We
integrate honesty, integrity and business ethics into all aspects of our
business functioning
 Goals: • Regional expansion in the field of distribution and develop a
strong base of key customers. • Increase the assets and investments of the
company to support the development of services. • To build good
reputation in the field of distributer.
 Scope of Work: Mumbai Shahkari Ghaslet Vitran Sanstha (ltd.) conducts
distribute of kerosene. The company undertakes all maintenance duties
for distribution facilities and organizations and conducts all the security
and surveillance for the society.
Financial Considerations: The Company expects to reach the desired profits in
the first year and does not anticipate serious cash flow problems. We believe
that the average profitability per month for the first 3 years will be sufficient.
Most of the organizations liabilities come from management investment.
Expected Activities of General Bank Account: Initial Deposit of Rs 400000 by
Bank of ICICI Official check was made. To prove the origin of funds, account
documentation will be provided.
Required Banking Services include savings account, checking account, online
banking, and secured credit card and debit card.

2

3

1.2 INTRODUCTION
I will complete my internship in Mumbai shakari ghaslet vitran sanstha at sewri.
He can take a dealership of kerosene in HP (Hindustan petroleum) at public
distribution system. There I’ll see a lot of problem in distribution system
Public distribution system (PDS) is an Indian food security system. Established
by the Government of India under Ministry of Consumer Affairs, Food, and
Public Distribution and managed jointly with state governments in India, it
distributes subsidized food and non-food items to India's poor. This scheme was
launched in India on June 1997. Major commodities distributed include staple
food grains, such as wheat, rice, sugar, and kerosene, through a network of fair
price shops (also known as ration shops) established in several states across the
country. Food Corporation of India, a Government-owned corporation, procures
and maintains the PDS.
In coverage and public expenditure, it is considered to be the most important food
security network. However, the food grains supplied by the ration shops are not
enough to meet the consumption needs of the poor or are of inferior quality. The
average level of consumption of PDS grains in India is only 1 kg per person /
month. The PDS has been criticized for its urban bias and its failure to serve the
poorer sections of the population effectively. The targeted PDS is costly and
gives rise to much corruption in the process of extricating the poor from those
who are less needy. Today, India has the largest stock of grain in the world
besides China, the government spends Rs. 750 billion ($13.6 billion) per year,
almost 1 percent of GDP, yet 21% remain undernourished. Distribution of food
grains to poor people throughout the country is managed by state
governments. As of date there are about 500,000 Fair Price Shops (FPS)
across India.
Kerosene, also known as lamp oil, is a combustible hydrocarbon liquid widely
used as a fuel in industry and households. Its name derives from
Greek: κηρός (keros) meaning wax, and was registered as a trademark
by Abraham Gesner in 1854 before evolving into a generalized trademark. It is
sometimes spelled kerosene in scientific and industrial usage. The term
"kerosene" is common in much of India, Canada, the United States, Argentina,
Australia and New Zealand.
Kerosene is usually called paraffin in the United Kingdom, Southeast Asia, East
Africa and South Africa. A more viscous paraffin oil is used as a laxative. A waxy
solid extracted from petroleum is called paraffin wax.
4

Kerosene is widely used to power jet engines of aircraft (jet fuel) and
some rocket engines, and is also commonly used as a cooking and lighting fuel
and for fire toys such as poi. In parts of Asia, where the price of kerosene is
subsidized, it fuels outboard motors on small fishing boats. World total kerosene
consumption for all purposes is equivalent to about 1.2 million barrels per day.
To prevent confusion between kerosene and the much more flammable and
volatile gasoline, some jurisdictions regulate markings or colorings for containers
used to store or dispense kerosene. For example, in the United States,
the Commonwealth of Pennsylvania requires that portable containers used at
retail service stations be colored blue, as opposed to red (for gasoline) or yellow
(for Diesel fuel).
The process of distilling crude oil/petroleum into kerosene, as well as other
hydrocarbon compounds, was first written about in the 9th century by
the Persian scholar Rāzi (or Rhazes). In his Kitab al-Asrar (Book of Secrets), the
physician and chemist Razi described two methods for the production of
kerosene, termed naft abyad ("white naphtha"), using an apparatus called
an alembic. One method used clay as an absorbent, whereas the other method
used ammonium chloride (Sal ammoniac). The distillation process was repeated
until the final product was perfectly clear and safe to light, i.e., volatile
hydrocarbon fractions had been mostly removed. Kerosene was also produced
during the same period from oil shale and bitumen by heating the rock to extract
the oil, which was then distilled.
Cooking
In countries such as India and Nigeria, kerosene is the main fuel used for
cooking, especially by the poor, and kerosene stoves have replaced traditional
wood-based cooking appliances. As such, increase in the price of kerosene can
have a major political and environmental consequence. The Indian government
subsidizes the fuel to keep the price very low, to around 15 U.S. cents per liter as
of February 2007, as lower prices discourage dismantling of forests for cooking
fuel. In Nigeria an attempt by the government to remove a fuel subsidy that
includes kerosene met with strong opposition.
Kerosene is used as a fuel in portable stoves, especially in Primus stoves invented
in 1892. Portable kerosene stoves earn a reputation of reliable and durable stove
in everyday use, and perform especially well under adverse conditions. In
outdoor activities and mountaineering, a decisive advantage of pressurized
kerosene stoves over gas cartridge stoves is their particularly high thermal output
and their ability to operate at very low temperature in winter or at high altitude.
5

Wick stoves like Perfection's or wickless like Boss continue to be used by the
Amish and off grid living and in natural disasters where there is no power
available.

Transportation
In the mid-20th century, kerosene or tractor vaporising oil (TVO) was used as a
cheap fuel for tractors. The engine would start on gasoline, then switch over to
kerosene once the engine warmed up. A heat valve on the manifold would route
the exhaust gases around the intake pipe, heating the kerosene to the point where
it was vaporized and could be ignited by an electric spark.
In Europe following the Second World War, automobiles were modified similarly
to run on kerosene rather than gasoline, which they would have to import and pay
heavy taxes on. Besides additional piping and the switch between fuels, the head
gasket was replaced by a much thicker one to diminish the compression ratio
(making the engine less powerful and less efficient, but able to run on kerosene).
The necessary equipment was sold under the trademark "Econom".
During the fuel crisis of the 1970s, Saab-Valmet developed and series-produced
the Saab 99 Petro that ran on kerosene, turpentine or gasoline. The project,
codenamed "Project Lapponia", was headed by Simo Vuorio, and towards the end
of the 1970s, a working prototype was produced based on the Saab 99 GL. The
car was designed to run on two fuels. Gasoline was used for cold starts and when
extra power was needed, but normally it ran on kerosene or turpentine. The idea
was that the gasoline could be made from peat using the Fischer–Tropsch
process. Between 1980 and 1984, 3,756 Saab 99 Petros and 2,385 Talbot
Horizons (a version of the Chrysler Horizon that integrated many Saab
components) were made. One reason to manufacture kerosene-fueled cars was
that in Finland kerosene was less heavily taxed than gasoline.
Kerosene is used to fuel smaller-horsepower outboard motors built by Yamaha
Motors, Suzuki Marine, and Tohatsu. Primarily used on small fishing craft, these
are dual-fuel engines that start on gasoline and then transition to kerosene once
the engine reaches optimum operating temperature. Multiple fuels Evinrude and
Mercury Racing engines also burn kerosene, as well as jet fuel.
Today, kerosene is mainly used in fuel for jet engines in several grades. One
highly refined form of the fuel is known as RP-1, and is often burned with liquid
oxygen as rocket fuel. These fuel grade kerosene’s meet specifications for smoke
6

points and freeze points. The combustion reaction can be approximated as
follows, with the molecular formula C12H26(dodecane):
2C12H26(l) + 37O2(g) → 24 CO2(g) + 26 H2O(g); ∆H˚ = -7513 kJ
In the initial phase of liftoff, the Saturn V launch vehicle was powered by the
reaction of liquid oxygen with RP-1. For the five 6.4 meganewton sea-level
thrust F-1 rocket engines of the Saturn V, burning together, the reaction generated
roughly 1.62 × 1011 watts (J/s) (162 gigawatt) or 217 million horsepower.
Kerosene is sometimes used as an additive in Diesel fuel to prevent gelling or
waxing in cold temperatures.
Ultra-low sulfur kerosene is a custom-blended fuel used by the New York City
Transit Authority to power its bus fleet. The transit agency started using this fuel
in 2004, prior to the widespread adoption of ultra-low-sulfur diesel, which has
since become the standard. In 2008, the suppliers of the custom fuel failed to
tender for a renewal of the transit agency's contract, leading to a negotiated
contract at a significantly increased cost.
JP-8, (for "Jet Propellant 8") a kerosene-based fuel, is used by the United States
military as a replacement in diesel fueled vehicles and for powering aircraft. JP-8
is also by the U.S. military and its NATO allies as a fuel for heaters, stoves, tanks
and as a replacement for diesel fuel in the engines of nearly all tactical ground
vehicles and electrical generators.

7

1.3 Executive Summary
The public distribution system as a social safety net can be
understood by the fact that aggregate availability of food grains
perse is not enough to ensure the ability to acquire food grains
and kerosene. Production does not automatically guarantee
consumption. The mere presence of kerosene in the economy, or
in the market, does not entitle a person to consume it. Even the
ability to buy may not guarantee kerosene security, unless there
is an efficient distribution system. The public distribution system
has remained a major instrument to execute the Government of
India's economic policy to protect the income-poor. The
objectives of the Government of India's Food Security Policy are
(i)
(ii)

Ensuring adequacy or sufficiency in supply of food grains
and kerosene,
Distributing food grains at an affordable price.

In a broad sense, the purpose of social security is to abolish
want by guaranteeing every citizen an adequate income at all
times to meet his needs. The aim of social security is to
guarantee for each person a minimum level of living through a
number of means. Our study concentrates on public distribution
system seen as a social safety net.

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1.4 Objective
 TO Study the public distribution system with special respect to kerosene.
 To study the socio-economic conditions of rural population
Brought under PDS.
 To study the problems relating to the implementations of the
PDS.
 To study the benefits derived out of PDS.
 To offer suggestions to improve the working of PDS.
 To evaluate the issues related to access, utilization and perception of PDS
among APL and BPL beneficiaries.
 To examine the process of procurement, storage and distribution of
kerosene in India.
 To study respondents’ opinion about cash transfer in place of subsidized
kerosene among APL and BPL beneficiaries.
 To study the distribution strategies of kerosene.
 To identify the problems of distributing the kerosene in PDS.
 To attempt socialization in the matter of distribution of kerosene

9

1.5 LIMITATIONS
 Our study has some limitations within which our findings need to be
interpreted carefully. Some limitations of this study should be mentioned.
First as in most empirical studies, the research presented here was limited
by the measures used. Because environments are composed of numerous
uncorrelated facets, public distribution system of kerosene

 Second, our study was cross-sectional in nature and assessed respondent
perception of the obligations at a specific time.
 Third, our study did not examine the impact of public distribution system
with special reference to kerosene.
 Last but not least, results of this study may not be completely generalizable
because the study of PDS was too vast.

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1.6 Literature Review
Bora (1992) explained evolution of food administration in
Maharashtra. The Bombay pattern for food control and
management was adopted for all over India. The British
Government followed a laissez fair price policy even in the food
worst situations. Distribution of available food grins and other
essential commodities, even in the scarcities, was left to the
market forces until the World War Second. This stared a
practice of hoarding, profiteering and speculation, to great
determent of producers and consumers and, at the same time,
the Government was also exporting food grains. Food grains
policy of 1943 strongly recommended the staring of rationing.
On the Bombay model of ration shops, it has been started at
Pune, Ahamdabad, Solapur and Hubli and it was adopted in
town and cities. Up to 1st January 1948, the rationing covered
9/10 off urban population of the provinces. As regard to the
process of control and decontrol of food grains, persisting
control was continued.
Dev (1998) has analyzed the welfare nutritional aspect of PDS. He referred that
food subsidy has increased from Rs. 295 crores in 1974-75 to Rs. 7500 crores in
1997-98. Through the subsidy has increased at par with open market price, PDS
prices have led to decline the off take. Casual labour, migrant workers and those
proper residential addresses were getting no benefits whatsoever form the PDS.
The cost of effectiveness of reaching the poorest 20 percent was very small i.e.
less than 22 paise per household. The study observed the negligible welfare
grains from the PDS. Some countries like Jamaica and Tunisia have adopted the
universality principal rather than targeted population. However, targeting is better
than universal subsidies.

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1.6 Relevance of the Study
PDS is an important planning scheme and greater importance is given to this
scheme as heavy expenditure is made on this. This study has greater relevance
because, the Government, Policy Makers and the Planning Commission should
know: 1. Weather the PDS scheme has reached right beneficiaries?
2. Weather the implementation of the scheme is done as per the norms lay down?
3. Whether the women SHGs are effective in running PDS?
4. Whether to continue or discontinue the universal system of PDS?
5. What are all the malpractices that exist in this scheme?
6. What are the problems faced by the rural poor in availing the benefits of the
scheme? And
7. What is the role of cooperative societies in running PDS?

12

CHAPTER 2
2.1 Definition of Concepts used
Important concepts used in this study are:1) Consumer Forum
Consumer Forums are organized either by consumers or by government to
redress the problems of the consumers.
2) Consumerism
Processes through which consumers seek redress, and remedy for their
dissatisfaction and frustration, with the help of organized efforts.
3) Consumer Protection
Taking measures, which contribute directly to give the consumer the
assurance that he will have the opportunity to buy goods of suitable quality
as required by him and to get the required service.
4) Cooperatives
Registered bodies under the respective State Cooperative Societies Act
and Rules.
5) Effectiveness of PDS
The fruitfulness of the PDS scheme – weather it has reached the right
people and weather the right people are using the scheme to their fuller
satisfaction or not.
6) Fair Price Shops / Ration Shops
Shops organized by government solely to distribute PDS article and
managed by states civil supplies department/ corporation / cooperatives /
women groups.
7) Lead Societies and Link Societies
For the purpose of PDS the Cooperative Marketing Societies and
Cooperative Wholesale Consumer Stores are acting as lead societies and
they procure and distribute the rationed articles to the link societies. The
Primary Agricultural Cooperative Banks are acting as link societies. Both
lead societies and link societies are running FPS to distribute the rationed
articles to the cardholders.
8) Public Distribution System (PDS)
PDS is a poverty alleviation programmer and contributes towards the
social welfare of the people. Essential commodities like rise, wheat, palm
oil, kerosene, sugar, etc., are distributed at a lower price, which has
government’s contributions of subsidy.
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9) Revamped PDS
The scheme lunched in January 1, 1992 covering 2496 development blocks
in the Country, which have employment assurance scheme. The retail price
of food grains under RPDS should not be higher than the central issue
price by more than 25 paisa per kg.
10) Targeted Public Distribution System (TPDS)
This scheme was launched on June 1, 1997. The TPDS is to confer
benefits on the landless agricultural labors, marginal farmers, rural artisans,
and craftsman in rural areas. It includes slum dwellers and persons earning
their livelihood on daily basis. Special cards were issued to the families
below poverty line.
11) Rationed Goods
Goods that are meant for PDS as notified by the government from time to
time.
12) WEAKER SECTION People below the poverty line and especially
coming under the category of SC & ST.

2.2 PDS in India
14

Public Distribution System is considered as principal instrument in the hands of
government for providing safety net to the poor and the downtrodden. The
system serves triple objectives namely protecting the poor, enhancing the
nutritional status and generates a moderate influence on market prices. The focus
and coverage of PDS have changed widely over the years. Initially during world
war civilian consumption was restricted so as to divert food items to meet the
food requirement of defense forces. Subsequently frequent occurrence of drought
throughout the country made the planners to think on food shortages. In order to
overcome this shortage ration system was came in to existence. FPS was opened
to distribute the items of mass consumption in urban areas. Thereafter, it was
extended to rural areas. From the year 1992 Revamped PDS was introduced in
those areas where Drought Prone Area Programme and Dessert Development
Programme were in operation. Under this system people were allowed to
purchase essential items from the FPS at relatively much lower subsidized rates.
After, the Chief Ministers Conference held in July 1996, a revised scheme known
as Targeted PDS was introduced countrywide with a network of 4.74 lakh FPS.
Under this system two-tier subsidized pricing system by classifying the
cardholders is followed. Cardholders are classified as Above Poverty Line (APL)
and Below Poverty Line (BPL). The BPL families are entitled to receive the
essential commodities at a price, which is very closer to the economic cost. BPL
families are identified based on the methodology given by Lakdawala Exert
Group on estimates of poverty. The TPDS was further liberalized in December
2000, and was renamed as Antyodaya Anna Scheme. Under this scheme the poor
was further classified as the ‘Poorest among the Poor’ and other living ‘BPL’.

2.3 Goals of PDS
15

The goal of PDS does not restrict itself with the distribution of rationed articles.
Making available adequate quantities of essential articles at all times, in places
accessible to all, at prices affordable to all and protection of the weaker section of
the population from the vicious spiral of rising prices is the broad spectrum of
PDS. More specifically, the goals of PDS are:
 Make goods available to consumers, especially the disadvantaged /
vulnerable sections of society at fair prices;
 Rectify the existing imbalances between the supply and demand for
consumer goods; Check and prevent hoarding and black marketing in
essential commodities;
 Ensure social justice in distribution of basic necessities of life;
 Even out fluctuations in prices and availability of mass consumption
goods; and
 Support poverty-alleviation programmes, particularly, rural employment
programmes, (SGRY/SGSY/IRDP/ mid day meals, ICDS, DWCRA, SHGs
and Food for Work and educational feeding programmes).

2.4 PDS Network

16

The unique feature of PDS in this State is Tamilnadu Civil Supplies
Corporation, Cooperatives and women SHGs govern the entire network. No
private dealer is allowed to run FPS. Also, the Government guidelines show that
no family cardholder is to travel more than 2 kms to reach FPS.
Further, Cooperatives have been given an important role in the
implementation in PDS. For example, as on 30.03.2004, there were 28132 FPS
including mobile FPS for the people in remote hilly area functioning in the state
(Table –2.1). This shows that majority of the FPS are run by cooperatives. In the
context of PDS, cooperatives are classified as Lead societies and Link societies.
The Lead societies are cooperative wholesale stores and cooperative marketing
societies, who act as whole seller in procuring essential commodities from
different sources and supply to Link societies that is PACBs and LAMPs. At
present in Tamil Nadu, there are 86 Lead societies functioning and they run 2598
FPS. There were 4540 Link societies and they run 16438 FPS. Apart from that
434 large-scale societies directly lifting the commodities to run 2626 FPS (Table
– 2.2). The district wise analysis shows that the number of FPS was high in
Villupuram (1846 FPS), which is followed by Coimbatore (1641 FPS), and Velur
(1613 FPS). This is because the number of Full-time FPS run by cooperatives and
women was high in villupuram. Interestingly 353 Full time and 157 Part time
women FPS are also in operation in the State as a whole. In addition to this there
are 36 mobile FPS are run so as to help the cardholders in remote villages / hilly
areas.

2.5 Food Subsidy
17

Food Subsidy is provided in the budget of the Department of Food and Public
Distribution to meet the difference between the economic cost of food grains and
their sales realization at Central Issue Prices for TPDS (Targeted PDS) and other
welfare schemes. In addition, the Central Government also procures food grains
for meeting the requirements of buffer stock. Hence, part of the food subsidy also
goes towards meeting the carrying cost of buffer stock. The subsidy is provided
to FCI under TPDS and other welfare schemes and for maintaining the buffer
stock of food grains as measure of food security.
The quantum of food subsidy depends on the level of procurement of food grains
and off take under TPDS and other welfare schemes. The budgetary estimate for
food subsidy during 2008-09 was about Rs. 37,000 Crores.

2.6 PDS System Today
18

The TPDS system today supports over 40 Crore Indians below the poverty line
with monthly supply of subsidized food grains. The system also provides gainful
employment for 4.78 Lakh Fair Price Shops Owners, their employees and hired
labor who work at the FCI and state warehousing godowns.
PDS also has become a cornerstone of government development policy and is
tied to implementation of most rural development programs. PDS is also a key
driver of public sentiment and is an important and very visible metric of
government performance.
One of the main problems with this system is the inefficiency in the targeting of
beneficiaries and the resulting leakage of subsidies. Several opportunities to
manipulate the system exist with widespread collusion across the supply chain.
The Planning Commission had the following to say on the PDS system in its
2005 report.
“For every Rs 4 spent on the PDS, only Rs 1 reaches the poor”
“57% of the PDS food grain does not reach the intended people”
The Challenges
There are many systemic challenges that plague the PDS system today and the
key ones are described below:
1. PDS Leakages - The TPDS currently suffers from a number of issues that
make it difficult for it to meet its objective of ensuring that the allotted
quota of specified food articles reaches the intended underprivileged/needy
segments of society:
 A large number of families living below the poverty line have not
been enrolled and therefore do not have access to ration cards
 A number of bogus ration cards which do not correspond to real
families, exist in the BPL & AAY categories. Food drawn on the
basis of these bogus cards is a significant leakage from the system,
as it does not reach the intended beneficiaries. Additionally, these
extra cards inflate the number of BPL and AAY cards in circulation
and further reduce the amount of food available to every rightful
beneficiary family
 A number of instances where benefits are being availed in the names
of rightfully entitled families without their knowledge. This shadow
ownership is possible due to inefficiencies in ration card issuance
and distribution
 Errors in categorization of families that lead to BPL families getting
APL cards and vice versa.
19

 A significant portion of benefits provided to the APL category under
the TPDS, are not availed by the intended beneficiaries and are
instead diverted out of the system.
In summary, targeting is not serving its real purpose, as the beneficiaries do not
get food grains in accordance with their entitlements.
2. Scale and Quality of Issue – The scale of issue and the quality of food
grains delivered to the beneficiary is rarely in conformity with the policy.
Many FPS are open only for a few days in a month and beneficiaries who
do not visit the FPS on these days are denied their right. The FPS also uses
multiple excuses to both charge higher rates and deliver reduced quantity
of food grains.
There are also significant differences in the manner in which the Centre and
States arrive at the number of BPL families. This mismatch usually means
lower allotments for each family as states arrive at higher numbers of BPL
families. As this problem may not go away even after reduction of duplicates,
a standard way of doing this must be arrived at for each state to resolve this
issue.
3. System Transparency and Accountability –The most serious flaw plaguing
the system at present is the lack of transparency and accountability in its
functioning. The system lacks transparency and accountability at all levels
making monitoring the system extremely difficult.
4. Grievance Redressal Mechanisms – There are numerous entities like
Vigilance Committee, Anti-Hoarding Cells constituted to ensure smooth
functioning of the PDS system. Their impact is virtually non-existent on
the ground and as a result, malpractices abound to the great discomfiture of
the common man.
Apart from the challenges described, transportation of food grains and
appointment of dealers of Fair Price Shops have also become difficult issues.
Viability of the FPS is already a major concern and this would get amplified once
PDS leakages are brought under control.

2.7 The Proposed Food Security Act
20

The numerical size of the target BPL population will be determined by the Centre
and identification of the individual poor households who will be entitled to BPL
benefits in each state will have to be done by each State.
The State Government can provide the grain through PDS at the notified
subsidized price or provide cash transfers of the subsidy amount to designated
BPL households. It has also been recommended that when a cash transfer is
made, it should be to a bank account in the name of the oldest women member of
the household.
The systemic changes proposed provide the capability to implement far-reaching
reforms. Systemic efficiency improving changes that can be explored include:
 Roaming Ration Cards providing an opportunity to short-term migrants to
move their ration cards to their new area or work.
 Direct Cash Transfer Program where the subsidy will be transferred into
the bank account of the beneficiary.
 Choice of Fair Price Shops should improve quality of service and this
solution allows the incorporation of either limited or full choice of FPS.
 Food Stamps can be introduced allowing competition from existing food
shops and increasing the reach of the TPDS network

2.8 Proposed IT based solution approach

21

A significant part of the challenges in the PDS system emanates from Bogus
(ration cards belonging to fictitious families) and Shadow (genuine ration cards
used by someone else) ration cards in the system. If the bogus cards can be
substantially weeded out and a mechanism put in place to positively confirm and
track the individual beneficiary off take on a monthly basis, the problems relating
to PDS leakages, Transparency and Transportation would get resolved, as leakage
would become more difficult to hide.
Earlier attempts at addressing the challenges have focused on identifying the
“Physical Theft” and used tools like additional Human monitoring, Global
Positioning Systems (GPS) on trucks to track the movement of trucks and
Electronic Weigh bridges. All these tools are easily by-passable and even if they
work efficiently, cannot address the PDS leakages that predominantly stem from
the bogus and shadow ration cards in the system.
A solution that improves the quality of the beneficiary database and can track
Individual Beneficiary off take coupled with a computerized MIS system can
effectively improve the PDS system. By leveraging some of the large egovernance initiatives that are being rolled out, the solution can be implemented
swiftly and cost effectively.

2.9 Categories of Public Distribution System in India
22

There have been monumental changes in the current Public Distribution System
since its inception. The following sections reveal the changes in the system since
independence and discuss their implications.
1. Revamped Public Distribution System (RPDS)
The Revamped Public Distribution System (RPDS) was launched in June, 1992
with a view to strengthen and streamline the PDS as well as to improve its reach
in the far-flung, hilly, remote and inaccessible areas where a substantial section of
the poor live. It covered 1775 blocks wherein area specific programs such as the
Drought Prone Area Programme (DPAP), Integrated Tribal Development Projects
(ITDP), Desert Development Programme (DDP) and certain Designated Hill
Areas (DHA) identified in consultation with State Governments for special focus,
with respect to improvement of the PDS infrastructure. Food grains for
distribution in RPDS areas were issued to the States at 50 paise below the Central
Issue Price. The scale of issue was up to 20 kg per card.
The RPDS included area approach for ensuring effective reach of the PDS
commodities, their delivery by State Governments at the doorstep of FPSs in the
identified areas, additional ration cards to the left out families, infrastructure
requirements like additional Fair Price Shops, storage capacity etc. and additional
commodities such as tea, salt, pulses, soap etc. for distribution through PDS
outlets
2. Targeted Public Distribution System (TPDS)
In June 1997, the Government of India launched the Targeted Public Distribution
System (TPDS) with focus on the poor. Under the TPDS, States are required to
formulate and implement foolproof arrangements for identification of the poor
for delivery of food grains and for its distribution in a transparent and
accountable manner at the FPS level. The scheme, when introduced, was
intended to benefit about 6 crore poor families for whom a quantity of about 72
lakh tons of food grains was earmarked annually. The allocation of food grains to
the States/UTs was made on the basis of average consumption in the past i.e.
average annual off-take of food grains under the PDS during the past ten years at
the time of introduction of TPDS.
The quantum of food grains in excess of the requirement of BPL families was
provided to the State as ‘transitory allocation’ for which a quantum of 103 lakh
tons of food grains was earmarked annually. Over and above the TPDS
allocation, additional allocation to States was also given. The transitory allocation
23

was intended for continuation of benefit of subsidized food grains to the
population Above the Poverty Line (APL) as any sudden withdrawal of benefits
existing under PDS from them was not considered desirable. The transitory
allocation was issued at prices, which were subsidized but were higher than the
prices for the BPL quota of food grains.

24

2.10 WHAT ARE RATIONS?
Rations are the monthly quotas of certain essential commodities distributed at
special rates to ration card holders by the government under the Public
Distribution System (PDS). Rations are essential for people with limited incomes.
The purpose of the Public Distribution System is to exercise some control over
prices of essential food grains and commodities. For advises and people living
below the poverty line, the government subsidies the cost of essential
commodities, thus further reducing Prices for these sections.
RATIONING RULES AND CARD HOLDERS RIGHTS
1. THE WEEKLY QUOTE IS NOT FORFEITED IF NOT PURCHASED: For
the convenience of consumer who cannot buy the fortnightly quote at one time,
purchase of rations on a weekly basic is permitted. If a card holder cannot
purchase his rations in the first fortnight of a month, he can do so in the second.
Sugar is available owing to shortage or strikes by shopkeepers, truckers or
godown employees in a particular month, these quotas will be made available in
the next month by the government.
2. DISPLAY OF SAMPLES: Samples of food grains, etc are to be displayed in
sealed plastic bags. The general impression that rations are of poor quality is not
correct. They have to be clean. The state government is supposed to lift stocks
from the Food Corporation of India only after proper examination. It does not
accept spoilt stocks. If the grains are of bad quality you have a right to complain
and have then exchanged. Samples of the available food grains have to be
displayed in the ration shops in sealed plastic bags bearing the number of the
godown and the date of delivery. The card holder can compare the quote given to
him with the sample in the bag and ensure that he is given the same quality. If
samples are displayed in plates you could be cheated.
3. ENSURE THAT YOU GET A RECEIPT: The receipt is yellow in colour and
in simple language. If the figures are not clear ask the shopkeeper to write them
down legibly. The receipt should give the date of purchase, details of the rations
supplied and the number of the ration shop in Marathi only. There is no rule that
the ration can be purchased only once a day. You may make more purchase
separately on the same day.
If the shopkeeper has no change, ask him to write the amount due on the back of
your receipt and to sign below so that the amount can be adjusted against your
next bill.
25

4. You are entitled to buy only the commodities you require. The shopkeeper
cannot insist that you buy Wheat or rice in order to get your quota of kerosene or
sugar.
5. A fee of Rs.5/- is charged for new card. The fee for replacement of a lost card
is Rs.10/-. There is no charge for issuing a temporary card, or for adding or
deleting names in the ration card.
6. When applying for a new card or adding names to a card, verification will be
carried out after your application is received and the card will be made available
within 10 days.
7. To obtain a ration card, applicants do not need to have a fixed residence.
Tenants, sub-tenants, pavement dwellers, temporary construction workers,
contract labours and hostels can all obtain ration cards after inspection to verify
produce a "no objection" certificate from the owner of the premises.
8. If a card holder is moving from one Locality of greater Mumbai to another,
there is no need to surrender his card. A slip giving the address of the rationing
office for the new residence, reference number and the number of the new ration
shop (ARS No.) will be attached to his ration card by the rationing office. The
card holder should first go to his change of residence; the officer in change will
guide him regarding the steps to be taken.
9. If the card holder is moving to Mumbai from districts or from outside the state,
he will have to get a surrender slip from his old rationing office and present it at
the new rationing office. If the card holder did not have a ration card in his
former home he will have to get a certificate from the 'talathi' of his district to
this effect. In case where documentary evidence cannot be produced, the
Rationing Inspector will inspect the home, verify the statement of the applicant
and issue a temporary card.
10. Card holders should not be intimated by threats made by the shopkeeper. He
has no powers to seize, change or cancel their cards.

26

INFORMATION TO BE DISPLAYED
The ration shop has to display:
a. The registration number of the ration shop (ARS No.).
b. The number, address and phone number of the ration office.
c. The inspector's name and the time of his weekly visit.
d. The stock position of all rationed commodities in units.
e. The official price list.
f. The total number of ration cards registered with the shop.
g. The total number of units.
A complaints book has to be available to card holders.
HOW TO GET A RATION CARD
You can obtain an application from for ration cards from your ration office or
district office on payment of Re.1/- There are three types cards, Yellow, orange
and white. The yellow cards are given to families below the poverty line, i.e.
those having an annual income between Rs.15, 000/- and Rs.1 Lakh. Those
families having an annual income of over Rs.1 Lakh are given white cards.
THE RURAL SECTOR
In ruler Maharashtra the Addl. District Collector is in over all charge of the P.D.S
but the District Supply Officer operates on his behalf. At the taluka level the
Tehsildar heads the rationing operations. There is a head clerk to assist him and a
rationing inspector who is charge of 100-125 villages. Hence, it is impossible for
the inspector to physically inspect them often. In rural areas, card holders obtain
Kerosene from authorized kerosene suppliers. The Chairman of various cooperative societies is required to certify that the quota given to the shop has been
properly distributed before a fresh quota is supplied.

27

HOW TO LODGE A COMPLAINT
Quite often, kerosene, Wheat and rice are not available or the sugar is less than
500 grams. People wish to complain against the shopkeeper but are afraid that he
may be abusive or confiscate their card. At such times to who should one
complain? First, one should ask for the complaint book in the ration shop and
enter the complaint in the book. Then inspector examines the book every time he
visits the shop. If the inspector does not redress your complaint, you should
complaint to the tehsilder/rationing officer. If there is still no action complain to
the Collector/Addl. Collector or District Supply Officer / Controller of Rationing.
Regarding Policy matters, suggestions or complaints should be sent to the
Secretary, Department of foods Civil Supplies and Consumer Affairs or to the
Minister. To ensure implementation of the rules and assert one's rights is difficult
for one person; hence it is necessary to from local organizations of ration card
holders. Local groups, women's groups and party branches should take the lead in
solving card holder's problems. For this complaint redress committees need to be
set up. Card holder, ration shopkeepers and ration inspector should be member of
these committees.
Such a committee could be for one ration shop or for 4 - 5 ration shops jointly.
Problems that cannot be solved by the committee can be referred to the
Controller or the Department. The PDS covers all of Maharashtra. Rationing
Problems affect everyone from city dwellers to advises. It is essential that those
organizations which are working on behalf of cards holders should come together
in the form of a federation to ensure proper working of the PDS.

28

Chapter 3
3.1 PDS Kerosene Allocation and Distribution
From April 1999 to January, 2000 the state Government had received
allocation of 1, 68,972 K.L.s Kerosene per month from central Government.
From April 2010 to May 2011 the allocation received was 1, 30,356 KL per
month. It is again further reduced in June 2011 and April, 2012. Up to March,
2013 State Government has received allocation of 75,648 K.L.s. Kerosene per
month from Central Government. Beyond this now from April 2013 the
additional reduction of 19.50% has resulted in availability of only 34% (60,864
K.L.) of kerosene requirement of the state.

District wise Kerosene allocation for April 2012 to June 2013
29

Months
April 2011
May 2011
June 2011
July 2011
August 2011
September 2011
October 2011
November 2011
December 2011
January 2012
February 2012
March 2012
April 2012
May 2012
June 2012
July 2012
August 2012
September 2012
October 2012
November 2012
December 2012
January 2013
February 2013
March 2013
April 2013
May 2013
June 2013
July 2013
August 2013
September 2013
October 2013
November 2013
December 2013

Demand
115638
115638
115638
115638
115638
115638
115638
115638
115638
115638
115638
115638
115638
115638
115638
115638
115638
115638
115638
115638
115638
115638
115638
115638
177253
177253
177253
177253
177253
177253
177253
177253
177253

Allocation
130356
130344
99804
99828
99804
99828
99828
99804
99804
99828
99804
99804
75648
75660
75660
75660
75660
75648
75660
75660
75648
75648
75648
75648
60864
60864
60888
60864
60864
60888
60864
60864
60888

3.2 Rates of wholesale & Retail Kerosene
As per the directions of the State Govt. rates of wholesale & retail kerosene, are
finalized by Collector at District level & Controller of Rationing in Mumbai &
30

Thane Rationing Area. At present the retail price of kerosene in Mumbai / Thane
Rationing Area is Rs.15.05 per litre and in other districts it comes between
Rs.15.05 to Rs.16.22 per litre.
Special subsidized rate of Kerosene
As per the policy of Central Government since 16th June 1988 a special
subsidized rate is made applicable to the kerosene sold in hilly areas of the State.
This scheme has been started in the 11 districts and 62 talukas. The 11 districts
are Dhule, Nashik, Thane, Pune, Satara, Ratnagiri, Sindhudurg, Sangli, Kolhapur.
Commission for kerone Licensees
1. Wholesale Licensee

:

:Rs. 438.24 per KL

2. Semi wholesale Licensee

:

Rs. 200 per KL

3. Retail / Hawker Licensee

:

Rs. 250 per KL

Measures have been taken to avoid misuse of kerosene
 In order to differentiate the PDS Kerosene the colour of the kerosene to be
distributed under PDS has been made blue. This helps to prevent misuse of
PDS kerosene.
 PDS Kerosene is distributed only on ration cards. For this instructions are
issued to all Collectors to issue ration cards to those who do not have the
same and appoint retailers in villages.
 In order to avoid diversion of kerosene by retailers, instructions have been
issued to supply kerosene to retailers at their doorstep at least in 50% villages
of the districts.
 Instructions have been issued to all Collectors to monitor & stream lining of
kerosene distribution system. Accordingly periodical and surprise inspections
of kerosene licensees are carried out. Also sudden and surprise visits or raids
are made on kerosene licenses or petrol/diesel pumps. Necessary action is
taken against those who are found guilty

3.3 The Use of Fossil-Fuel Subsidies in India
Informal price controls for energy were first introduced in India in 1939, when
31

government-owned oil companies began basing domestic prices on import parity
of finished products (Shenoy, 2009).1 Price controls were also introduced at this
time for food, in the form of the Public Distribution System (PDS). The initial
purpose of the PDS was to ensure the equitable distribution of food items to
urban centres. Regulation of fuel prices was formalized in 1948 with the
establishment of fixed margins for petroleum refining and dealers (Shenoy,
2009).
During the Second World War, kerosene was in short supply and rationing was
required to control distribution. Kerosene for residential purposes was included in
the PDS. Soon after the end of the war, the supply and availability of food and
other commodities improved and the price controls were removed. However, in
1957, the PDS was reinstituted and expanded as a means of stabilizing prices,
including kerosene for residential consumers.
Subsidies for LPG were also introduced in late 1960 with the aim of encouraging
households to use a fuel for cooking that was cleaner than biomass. Oil marketing
companies were forced by government determined fixed prices to offer subsidies
for LPG despite its consumers being concentrated among the rich and the middle
class (Center for Energy Economics, 2006). However, LPG subsidies were not
included in the PDS.
India’s fossil-fuel subsidies: A timeline
1939
1939–1945
(WWII)
1948
Late 1960s
1976
1980s
1989
2002
2003
2005

2006

Commencement of the Public Distribution System (PDS)
for subsidized food
Domestic oil prices based on import parity
Subsidized kerosene included in PDS for residential
consumers
Fixed petroleum refining and dealer margins established
Subsidies for liquid petroleum gas introduced for
residential consumers
Petroleum prices fixed under the Administrative Pricing
Mechanism
First attempt at marking subsidized kerosene with dye
Coupon system introduced to control access to subsidized
kerosene in Mysore (program closed two years later)
APM dismantled; petroleum prices (other than residential
kerosene and LPG) liberalized
Government intervention in petroleum prices
Global positioning systems fitted to kerosene distributor
trucks in an attempt to prevent diversion of fuel (program
closed in 2008)
Marking of subsidized kerosene with a dye to prevent
diversion of fuel (program closed in 2008)
High-level committee “Rangarajan” report
recommends liberalization of petroleum product prices

32

2007

2008
2010

(recommendations involving the market prices not
implemented)
“Smart cards” considered to control access to subsidized
kerosene (program not adopted)
Government “Chaturvedi” report recommends
liberalization of gasoline and diesel prices and changes
to fuel tariff and taxation regimes (recommendations not
adopted)
“Parikh” expert group recommends market-oriented
pricing (government action pending at the time of writing)

The Indian federal government’s Sixth Five Year Plan, covering 1980–85, stated
that the PDS would “have to be so developed that it remains hereafter a stable
and permanent feature of our strategy to control prices, reduce fluctuations in
them and achieve an equitable distribution of essential consumer goods”
(Government of India, 1980). When the program was first started the subsidy
element was not significant. As time went on, political pressure forced each
successive government to increase the portion of subsidy to both food items and
fuel. The PDS has become one of the principal methods by which the state
provides welfare to the public. Consequently it is used by all of India’s political
parties to generate and maintain political support.
Between 1976 and 2002, petroleum product prices were fixed by the governmentconstituted Oil
Pricing Committee based on what is known as Administrative Pricing Mechanism
(APM). Under APM, oil companies were guaranteed a minimum rate of return.
Kerosene and LPG were cross-subsidized by higher-priced petrol, diesel and
other products. Thus, oil marketing companies were always able to earn a
reasonable rate of return on the assets employed.
In 2002, the government dismantled APM with great fanfare and oil companies
were given some freedom to sell products based on market prices. Soon after
dismantling the APM, the government also announced that the subsidy for
residential kerosene and LPG would be eliminated within three years.
However, when crude oil prices increased in 2003, the government started to
once again intervene in fuel-pricing decisions. The kerosene and LPG subsidies
were not eliminated and the government extended subsidies to other fuels. When
crude oil prices rose above US$60 per barrel, the government disallowed cost
pass through by the oil-marketing companies (Chaturvedi, 2008). State-owned oil
companies (the Indian Oil Corporation, Bharath Petroleum and Hindustan
Petroleum) were directed by the federal government to sell gasoline and diesel at
a price that was below their cost of production.
33

The result was large financial losses (Table 1).
Since the government did not allow increases in domestic prices for PDS
kerosene, residential LPG, gasoline and diesel in line with the increasing
international crude oil prices, the cost of subsidies increased more than 100 per
cent between 2005–06 and 2008–09.
Table 1

Under-recoveries of government-owned oil companies for petroleum
products (in US$ billions)

Fuel
PDS Kerosene
Domestic LPG
Gasoline
Diesel
Total

2005–06

2006–07
3.25
2.31
0.62
2.86
9.03

2007–08
4.2
2.51
0.48
4.41
11.61

2008–09
4.47
3.86
1.82
8.73
19.16

6.14
3.83
1.13
11.37
22.45

Source: Ministry of Petroleum and Natural Gas, 2009, p. 234.

The above subsidy estimates by the Ministry of Petroleum and Natural Gas are
based on “under-recoveries” of the oil marketing companies—what the oil
companies would have paid to buy products if they were imported from abroad
(import parity).2 As such, the estimates should be considered as notional losses
since the actual costs incurred by oil companies are likely to be different given
that their crude oil costs would be not necessarily be the same as the market
prices elsewhere, and they do not count refining profits or losses.
The actual losses by the government-owned oil companies were evidently
substantial as the federal government gave significant financial assistance to
compensate the companies (Table 2). For example, estimated under-recoveries
in 2007–08 by oil marketing companies were US$19.16 billion and the
government provided US$15.85 billion in support. The support may have only
partially compensated the actual losses by the oil companies.
Table 2

Financial assistance provided to downstream oil companies (in US$ billion)

Type of assistance
Subsidies arising from the
upstream sector1
Federal on-budget subsidies2
Oil bonds3
Total

2002–03

2003–04

2004–05

2005–06

2006–07

2007–08

0

0

1.34

3.16

4.82

6.39

1.08
0
1.08

1.38
0
1.38

0.67
0
2.01

0.66
2.60
6.42

0.72
5.67
11.21

0.70
8.77
15.85

1

2
3

On an ad-hoc basis, government-owned upstream companies (ONGC and Indian oil) were asked by the government to subsidize
some of the losses of downstream by transferring money to them.
Funds allocated by the finance ministry in its annual budget to pay the oil companies for the kerosene and LPG subsidies.
Oil bonds are used by the government to pay partially for the under-recoveries of the oil companies, while avoiding on-budget subsidies.
India may be the only country that uses this method to compensate public sector oil companies.
Source: Chaturvedi, 2008.

An alternative approach to estimating likely subsidy levels is to calculate the
34

government’s losses in different sectors of the value chain for energy production
and distribution. In order to find how value is created along the complex energy
chain from exploration and production (both oil and gas) to refining, distribution
and marketing, a computer-based value chain model was developed that can
simulate the government revenues in different links of the energy value chain
(see Annex 1).3 These are shown in Table 2. This simulation of the model was
based on an oil price of US$70 per barrel.
Table 3 Annual estimated opportunity cost of providing energy at below-market
prices based on the value chain model, when international oil prices are US$70 per
barrel
Fuel
Petroleum products
LPG
Kerosene
Gasoline
Diesel
Natural Gas
Electricity1
Total

Losses (US$ billions per year)
10.8
2.6
3.9
0.2
4.1
4.4
8.2
23.4

According to a report by the Petroleum Federation of India, petroleum product
subsidies, as a percentage of fuel-related revenue, increased from 7 per cent in
2004–05 to 82 per cent in 2007–08. This calculation is based on subsidies to PDS
kerosene and domestic LPG provided in the government budget, plus implicit
subsidies through issue of oil bonds. The product subsidy percentage is computed
as a ratio of subsidies to the total revenue collected by the central government
through excise duties and levies on petrol, diesel, PDS kerosene and domestic
LPG.
In the Indian power sector, electricity prices are controlled by government at the
state level. Every state provides electricity to the agriculture sector for free or at a
price that is below the cost of production. In some states, to help those below the
poverty line, there is a policy of distributing some amount of free power. As a
result of these policies, state-owned electrical companies incur large operating
losses but no official data exists on the cost of these subsidies.
Natural gas was under-valued in India for many years. Until exploration was
opened to foreign oil companies in the early 1990s, gas was produced only by the
government oil companies. Considered an inferior by-product of producing oil,
and with no means of distributing it to smaller customers, the natural gas was
used either by government utilities to produce electricity or by fertilizer
companies. Since both electricity and fertilizer prices were controlled, gas prices
were also controlled. There were implicit subsidies through low prices (Shenoy,
35

2007). Even after exploration and production was liberalized and gas began to be
sold to industrial consumers other than fertilizer manufacturers, the government
continued to sell gas at prices below its true market value (as determined by
comparison with competitive products like diesel or fuel oil and the market value
based on international prices).
3.4

The Rationale for Reform

A 2005 study revealed that around 38 per cent of PDS kerosene was diverted to
the black market and did not reach the intended recipients (NCAER, 2005). In
some states, diversion is as high as 50 per cent or more. This was the first
comprehensive and definitive research done at the national level by a reputed
institution to study the problems affecting PDS kerosene. There have been other
studies of PDS kerosene (Ministry of Environment & Forests, 2003) but most
examine problems at the state level (Alam, Sathaye and Barnes, 1995) and with
lesser scope (Morris, Pandey and Barua, 2006).
Large rents (black money) are collected by those who have access to subsidized
products such as kerosene and LPG and diverted to other non-subsidized sectors.
Figure 1 provides an estimate of these rents based on the tax and price regime
prevailing in June 2009 and crude oil price of US$70 per barrel. The black
money generated is based mostly on the price differential between kerosene and
petrol or diesel and residential LPG compared with LPG sold to commercial or
transport users (Figure 2).
Figure 1 Estimated amount of rents (black money) collected from misappropriation of
subsidies and diversion of kerosene and LPG in India (when oil is priced
at US$70 per barrel) (in US$ billions)

Notes: The first two columns provide estimates of the amount of subsidies for PDS kerosene and
residential LPG that are misappropriated by non-target recipients. The remaining columns show
estimates of the additional financial benefit collected as a result of diverting fuel to higher valued
products.
Source: Based on the computer model developed by the author.

Figure 2 Drivers behind adulteration: Price differentials
36

(US$ per MT when oil is priced at US$70 per barrel)

Note: LPG for transport is a higher price than commercial LPG because it has a higher tax component.
Source: Indian Oil Corporation

India’s poorest families suffer as a result of shortages of kerosene arising from
fuel diversion. Families are sometimes without lighting or unable to cook food
because they cannot access their quota of kerosene. But the kerosene is plentiful
on the black market at higher prices (see Box 1). Scarcity of essential
commodities like fuels for the poor can, in turn, lead to civil unrest.
The kerosene dealers and wholesalers are the beneficiaries of almost half of the
kerosene subsidy funding intended for the poor. The government-mandated
commission for kerosene wholesalers or retail dealers is small. However,
kerosene dealerships are highly sought after due to the potential to collect huge
rents through fuel diversion. The same is true of dealerships for gasoline stations,
where the commissions provided by oil companies to operate the stations are low
but there is considerable demand to secure gasoline dealerships due to the
opportunity to earn a black-market income from blending PDS kerosene with
gasoline and diesel.
The government has quotas for awarding such dealerships. In 2004, when it was
discovered that there was corruption involved in awarding service-station
concessions, the Supreme Court cancelled all such contracts and ordered the
government to award them in a more transparent way. However, it remains the
case that the politically connected often own the gasoline dealerships. And
corrupt politicians and officials in the bureaucracy in charge of distributing and
37

regulating kerosene collect bribes from kerosene marketers.
In addition to the misappropriation of government funds, there are other
consequences of kerosene-related corruption that affect the broader population.
The black market money generated from the subsidy system funds the election
expenses of political leaders, which results in corrupt governance. Kerosene
blended with petrol and diesel causes engine damage, affecting motorists.
Adulterated fuel gives rise to air pollution because of inefficient combustion. In
the longer-term, there are also likely to be long-term deleterious impacts on
India’s energy security as the subsidy interferes with the ability of pricing signals
to balance the supply and demand for energy sources. And because price signals
do not operate properly under the subsidy system, there is less incentive to reduce
energy consumption or for renewable energy sources to compete.

38

2006 In, Seethamma from Manjunathpur, a slum area in Mysore City, would
get up at four in the morning
with the hope of securing cooking fuel for her family. She walked with a fuel
can to the Public Distribution Shop (PDS) in Yadavagiri, which is two
kilometres away and would wait for four to five hours until the kerosene cart
arrived. She would be joined in the long line by many others, including school
children. Even after such a long wait, she may not get her monthly quota of
kerosene of six litres (reduced from eight litres), as the kerosene cart may not
come at all. She would follow the same routine in the following days until the
kerosene cart arrived. At the time, PDS kerosene was sold at Rs. 9 per litre,
whereas diverted PDS kerosene was available in the black market for Rs. 35 per
litre.
The cooking fuel today for those above the poverty line is LPG. Usually they
need not worry about availability of kerosene. However, there are many
families with a single LPG cylinder. They depend upon kerosene when their
LPG supply is exhausted. The government provides two litres of kerosene per
month to meet such emergency situations. But this backstop exists only on
paper. From time to time, there is a shortage of LPG in Mysore. During such
periods, consumers have
to wait for days to get their replenishment.

Like kerosene, the subsidy for residential LPG is subject to abuse. As noted in
Figure 2, there is a large difference between LPG prices in the residential sector
and the commercial and transportation sectors. This price difference gives rise to
diversion to the black market, as quantified in Figure 1.
Although the government would like to reduce the subsidy on LPG and allow the
market to determine the selling price, it is unable to do so due to the political
unpopularity of such a move.
In addition to their fiscal impact, subsidies for gasoline and diesel seriously
disadvantage private fuel distributors with operations in India, such as Reliance
and Essar. Private companies are indirectly forced to close their marketing
operations when the government forces government-owned distributors to sell
retail gasoline and diesel at prices below the cost of production. This is what
happened during the crude oil price increases between 2006 and 2008 (Agarwal,
2008). Essar and Reliance had together captured about 17 per cent of the
domestic retail market for diesel and accounted for 10 per cent of petrol sales by
2005 before heavily subsidized sales by state-run firms undercut the private
companies and drove them out of business.
39

Despite the electricity supply being limited, lower prices and subsidies do not
give rise to a large amount of corruption. Opportunities to divert electricity on a
large scale, unlike petroleum products, are limited. It is difficult to establish a
large industry inconspicuously in a low-income residential area and not be
detected while drawing subsidized electricity. Still, some consumers do get
subsidized power by claiming themselves as farmers or poor consumers. And
commercial losses of state electricity boards are large, mostly on account of
transmission and distribution losses. In some states, these losses are more than 50
per cent. This is not because of the subsidies but because of the mismanagement
on the part of the state electricity boards.

3.5 Reform Strategies
The federal government has tried several strategies to better target kerosene
subsidies to ensure they reach the intended recipients or to liberalize the fuel
market and thereby eliminate the opportunity for profiteering and corruption. All
of these strategies have failed. Although some showed some promise, they were
not followed through.
On paper, the government has an elaborate system to detect diversion and
prosecute the guilty. But, in reality, few are detected and punished. In 2005 an
officer of Indian Oil Company, Mr. Manjunath, was murdered because he
planned to expose an owner of a gasoline station selling fuel that had been
adulterated with subsidized kerosene. Soon after the murder, the Prime Minister
of India announced that the government would streamline petroleum pricing and
take every step to eliminate the adulteration. It is more than four years since that
announcement, and the price differential between kerosene and gasoline only
increased, as have opportunities to skim off rent. Even in early 2010, after oil
prices returned from the record highs of 2008, the price differential between
kerosene and gasoline was still greater than what it was in 2005.
40

1. Strategies to better target intended recipients and detect diversion
I.

Global positioning systems

In October 2005, just a few weeks before Mr. Manjunath’s murder, the Petroleum
Minister launched a new initiative called “Jan Kerosene Pariyojana” (PKJ) to
improve kerosene supplies to poor consumers and prevent the diversion of
kerosene. This plan was to involve local government at village levels.
Under PKJ, dedicated tankers fitted with Global Positioning Systems supplied
kerosene to wholesalers to keep track of their movements. A study done by
NCAER in 2007 showed that the benefit derived from PKJ was less than its cost.
The program, launched with great fanfare, was finally terminated in
2008 (Financial Express, 2008).
II. Distinctive coloring for subsidized fuel
In the 1980s, the government tried blending blue colourant with PDS kerosene to
help detect the diversion of PDS kerosene. However, where officials were
colluding with gasoline station owners, few corrupt activities were reported.
Also, a dye to neutralize the blue coloring material was soon developed,
rendering the additive ineffective.
In October 2006, Petroleum Minister Murli Deora announced that the
government would begin dyeing kerosene with a non-removable marker imported
from Authentic of the United Kingdom, saying it was intended to end the
adulteration of automotive fuel (Financial Express, 2008). The annual cost of
US$33 million was small relative to the cost to the government of fuel diversion.
This revolutionary
“Marker” was supposed to detect even the minutest adulteration by kerosene.
However, the pump owners soon found that they could neutralize the marker
simply using natural clay. The supposedly tamper-proof marker was dropped
within two years of being launched (Ranjan, 2008).
III. Coupon system
In 1989, the Mysore Consumer Council found that more than 30 per cent of PDS
kerosene sold in Mysore was diverted to black marketing for blending with
higher-priced products. The Council recommended to the district government a
simple strategy of supplying kerosene through a “coupon system” (Shenoy,
1995).
At the beginning of the month, each beneficiary would be given coupons to buy
an allocated quantity of kerosene. The dealer should sell kerosene to only those
41

with coupons. Next month, the dealer would be supplied kerosene based on the
coupons he had collected from the beneficiaries. If he had sold kerosene in the
black market or diverted it for other uses, his next month’s supply would be
reduced accordingly since he would not have coupons for such sales. Thus, a
dealer could divert the sale only once, after which his quota would be reduced
automatically.
Soon after the coupon system was implemented in a town, the Mysore Consumer
Council assessed the views of the dealers and consumers. Consumers were
pleased that they did not have to wait in long lines and they could show up any
time to buy kerosene. They were able to obtain their allocated quota of kerosene
without any hassle. The dealers were not happy, however, and complained that
they had to wait for consumers to come and cash in the coupons before they
could replenish their supplies for the following month.
Though the idea was accepted by the bureaucracy and several progressive
political leaders, there was resistance to implement the scheme. Despite this, it
was implemented successfully in some parts of the state of Karnataka (Deccan
Harold News Service, 1996). After a few months, however, with the change in
leadership and strong lobbying by kerosene dealers and politicians belonging to
all parties, the coupon system was slowly dismantled.
The coupon system showed promise and, in fact, could have been adapted to be
made more flexible.
The government could have used the coupon system to allow the distribution of
PDS kerosene by non-government retailers, for example. Kerosene could be
distributed more efficiently if any dealer could sell kerosene (as is the case with
subsidized edible oil in India).
Better targeting the subsidy would allow the total subsidy amount to be reduced
considerably. Coupons could be given to those below the poverty line who could
use those coupons at any shop to buy kerosene and value of the coupon would be
printed on it. Then consumers would go to the shops that allow them to maximize
their purchase amount. Thus the government could remove itself from the
business of setting and monitoring the PDS shops. Like currency notes, there is
always the risk of counterfeiting the coupons. But this is a manageable risk.
IV. Smart cards
In 2005, the Planning Commission of India published the report Integrated
Energy Policy (Government of India, 2006). The report recommended using a
smart card—a high-tech alternative to the low-tech coupon system. Such a
42

system would assist in better monitoring of the distribution of PDS kerosene and
was expected to be foolproof and tamper-proof. In 2007, the Petroleum Ministry
considered implementing a smart card system on an experimental basis in the
three states of Bihar, Maharashtra and Uttaranchal. However, all three declined
the offer and the plans were dropped. This is an example of how the political
class opposes any system to reduce diversion of PDS kerosene (Bhaskar, 2007).
Soon after the formation of a new government in 2009, the Prime Minister
appointed Mr. Nandan Nilekani, one of the founders of Infosys (one of India’s
largest IT companies) to lead the implementation of a “unique identification
card” for every citizen of India. Now there is a renewed hope that such a
biometric card, with all the relevant information on citizens, can help the
government to distribute welfare measures to targeted sectors with minimum
diversion or misuse. But, given the circumventions of earlier strategies—highand low-tech—only time will tell whether this latest development will be the one
that finally succeeds.
2. Other strategies to reduce fuel diversion and subsidy demand
a)

Liberalization of petroleum prices
The Integrated Energy Report of 2006 recommended that the oil companies be
given the freedom to control the prices based on market forces (Government of
India, 2006).In the same year, a high-powered committee headed by Dr. C.
Rangarajan, chairman of the Economic Advisory Council to Prime Minister,
strongly recommended implementation of market-based prices rather than the
government-mandated, politically-influenced prices (Rangarajan, 2006).
Within two years (July 2008), another high-powered committee report headed by
B. K. Chaturvedi, a member of the Planning Commission, also recommended that
“government should keep itself at arm’s length distance from actual price setting
and should allow flexibility to oil companies to fix the retail price subject to the
indicative ceiling so as to introduce an element of competition” (p. 51). This
committee also recommended the reduction of the LPG subsidy (Box 2).
In 2009, a high-level committee headed by Dr. Kirit Parikh (a former member of
the Planning Commission) was asked to study petroleum product pricing because
of the unsustainable level of under-recoveries by oil companies. The report, titled
A Viable and Sustainable System of Pricing of Petroleum Product Prices,
recommended liberalizing gasoline and diesel prices and reducing subsidies on
LPG and kerosene. The report also commented on the diversion of subsidized
PDS kerosene and residential LPG. However, there was no discussion on the
43

amount of black money generated by these two products. Only the economic
impact of subsidies is discussed.

Box 2
The High Powered Committee on the Financial Position of Oil
Companies,
2008 (the Chaturvedi Report)
In June 2008, Prime Minister Dr. Manmohan Singh constituted a committee under the Chairmanship of B.
K.Chaturvedi, member of the Planning Commission, to examine the financial position of oil companies.
The committee’s terms of reference were to examine the impact of the increase in oil prices between 2004–
05 and 2008 on the financial position of India’s oil companies, including upstream exploration companies,
refiners and downstream oil marketing companies. The committee was to also analyze the cash flows and
profitability of all the companies, examine “under-recoveries” and the deficit faced by oil marketing
companies as a result of price constraints imposed on them.
The committee recommended:
• raising prices of petrol by US$0.05 a litre per month until March 2009 and those of
diesel by US$0.02 per litre until 2010 to eliminate subsidies on the two fuels;
• temporary duty changes and the method of calculating retail selling price of fuel;
• levying a Metro Extra tax of US$0.04 per litre on diesel in four instalments in large
cities where the fuel was being used in expensive cars;
• lowering the benchmark used for domestic retail pricing by 10–15 per cent by shifting
away from the current principle of trade parity pricing;
• changes in distribution of domestic LPG by restricting only six refills per connection a
year;
• reducing the import duty on petrol and diesel to zero (from 2.5 per cent), as has been
done in the case of crude oil and domestic kerosene;
• imposing a new tax on oil produced from fields awarded prior to the advent of New
Exploration Licensing Policy in 1999—state-run firms like ONGC would be stripped of
any gains above US$75 a barrel while private companies like Cairn would be taxed at
40 per cent for gains over this benchmark rate.
Sources: Chaturvedi, 2008; Thaindian News, 2008; PTI, 2008; Jog, 2009.

b) Energy diversification: Increasing electrification to reduce subsidy
demand
The Chaturvedi Report, using data from a national survey conducted during 2005
and 2006 (National Sample Survey Organisation, 2008), also found that rural
households use kerosene primarily for lighting; only one per cent use it for
cooking. With increases in electrification, the rural use of kerosene for lighting
has fallen to 42 per cent in 2005–06 from 51 per cent in 1990–2000. The report
recommended that all those rural households below the poverty line (about 50
million) be provided with one solar lantern costing US$75 each. The total cost of
this strategy would be US$ 5 billion, amounting to roughly two thirds of the total
annual subsidy element of supplying PDS kerosene.
Like the other recommendations of the report, this policy was not implemented.
44

Even if it were to be implemented, it still might not lead to a reduction in the
kerosene subsidy. The Chaturvedi Report brought out an important fact: despite
large increases in access to electricity, the allocation of kerosene has remained
essentially the same over the years. For example, 24 per cent of rural kerosene
consumption goes to states that have achieved 100 per cent electrification and
thus presumably do not need the fuel for lighting. This is another telling example
of how there is no political will to control the misuse of the kerosene subsidy.
3.6 Lessons Learned and Forgotten
Several specific lessons can be observed from India’s experience in attempting to
reform its kerosene subsidy. These are outlined below.
1. Subsidies become permanent
The first lesson of this case study is that once a subsidy is granted to any sector of
society, it becomes very difficult to reduce or eliminate it. When the LPG subsidy
was introduced, it might have been justified to promote it as a cooking fuel. But
once it became a popular and sought-after fuel, the government should have
removed the subsidy. This is a lesson known to most political scientists and
economists. Once the subsidy genie is out of the bottle, putting it back in is a
difficult task indeed.
2. Subsidies lead to corruption
When offering a subsidy, it is better to offer it in the form of monetary (cash)
benefits rather than through a reduction in the price of a good. There is every
possibility that a large share of the subsidized products will be diverted to the
black market or used for blending with higher-value products. Thus, the society
loses in two ways. First, some of the subsidies do not reach the intended
beneficiaries. Second, the misused subsidy feeds the black economy, providing
money that can be used to influence corrupt bureaucrats and the political system.
Today this is such an accepted fact in India that the media has stopped reporting
on it because it has lost its sensational value. Finally, corruption can help to
entrench subsidies further, by creating a new set of influential stakeholders that
lobby against reform.
3. International financial institutions to impose conditionality
One other way to overcome the problem of political will is to put pressure
through international institutions like the World Bank, the IMF and Transparency
International (TI). Indirect pressure from the World Bank and the IMF helped in
45

fighting corruption in Georgia (Bearing Point Inc., 2004).
Just as the Extractive Industry Transparency Initiative has succeeded in
implementing a “Publish What You Pay”5 strategy to reduce corruption in oilexporting countries, TI could develop a system to expose the tyranny of
downstream corruption from subsidies by publishing the level of misused and
diverted subsidies. This may show such losses to be more than their foreign aid.
It was certainly the case in India. In many countries, subsidies only enrich the
politicians and those who are close to them. Such reports by TI may influence the
donor countries to put indirect pressure to eliminate such subsidies as long as
they are providing foreign aid.
The recent commitment from leaders of the Group of Twenty (G-20) countries,
including the Prime
Minister of India, to phase-out inefficient fossil-fuel subsidies also provides
useful leverage for India to institute lasting reforms. Citing international
obligations can give political leaders the cover that they need to implement
domestically unpopular reforms.
4. Need for an efficient justice system
When a society has no strict monitoring system, nor a system for meting out
rapid justice, it is not easy to implement any strategy to detect adulteration. This
is what happened when blue dye was added to PDS kerosene. India has one of
the most sophisticated bureaucratic systems to detect offenders and punish the
guilty. But this is only true on paper. Systemic changes to avoid the possibility of
adulteration (like the coupon system or smart card) have the potential to reduce
fuel diversion but removing the underlying incentive is the only way to
permanently address its cause.
5. Partial solutions will have limited effect while the underlying
incentives for fuel diversion remain in place
Except for the coupon system, all other efforts to reform the kerosene subsidy
have failed, including using dye to colour PDS kerosene, mixing with
sophisticated markers, using special GPS-equipped tankers and using local
governments to eliminate fuel diversion. Though the coupon system seems to
have worked, the politicians who were harmed by it managed to get it stopped.
These policies were quickly evaded or repealed because the underlying incentive
for fuel diversion remained in place. The liberalization of fuel prices is the only
reform that would address the underlying cause of fuel diversion and corruption.
Though selling a product at different prices may appear to be a reasonable policy
under certain circumstances, such as providing cheap fuel to disadvantaged
46

sectors or selling gas at low prices to fertilizer or power companies, such dual or
multiple pricing gives rise to rent-seeking behavior, even in the best-governed
society.
Despite the announced intentions of the government to allow the oil companies to
determine prices based on market conditions, nothing has come out of them
because of a lack of political will. One of the reasons could be that there are a lot
of misunderstandings regarding the concept of “under-recoveries.” Even
reasonably informed people have no appreciation for such concepts as “import
parity,” “trade parity” or “export parity” to compute under-recoveries. They are
therefore not aware that the oil marketing companies are losing money. There is
also a feeling that it is perfectly justified to appropriate some of the “large”
profits from upstream companies like ONGC and Indian Oil. The government
and civil society need to educate both the politicians and the public on the
necessity of allowing market forces to determine prices. It is only the discipline
of the market forces that will give the proper pricing signals.
6. The invisible hand of self-interest behind subsidies
Finally, a lesson we have not yet learnt or might have forgotten is the one taught
by Adam Smith in 1776 in The Wealth of Nations. The driver behind the entire
oil-sector subsidy system and the absence of political will to dismantle the APM
in true spirit is not the desire to help the poor, but it is the invisible hand of selfinterest, collecting rents. Smith believed that when an individual pursues his or
her self-interest, the good of society is indirectly promoted. But in the case of
subsidy systems, this principle does not hold true. Even in India, with brilliant
economists (the current Prime Minister, Manmohan Singh, is one), only a small
attempt has been made to educate the public on the enormous amount of black
money generated on account of the oil-sector subsidy, mostly by PDS kerosene.
There are very few published articles that discuss how much black money is
generated. Most have published articles on the diversion of PDS kerosene and
domestic LPG only, and have not even tried to show what it costs the economy

47

Chapter 4
4.1 Kerosene market and use characteristics in Maharashtra

In Maharashtra, 70% of households (68 million people) use kerosene. Of these,
about 50 million users are in rural areas (91% of the rural population), and 18
million are in urban areas (49% of the urban population).
Urban use of kerosene is higher in Maharashtra than in the rest of the country,
and even more so in the vast slums of metropolitan Mumbai (Fig. 1). The average
kerosene consumption among households earning less than Rs. 4000 per month
(or $250 PPP) in urban Mumbai was over 10 l per month. As a result, though
26% of kerosene users in Maharashtra are in urban areas, they consume 45% of
total household kerosene use in the state.
Kerosene is used widely across income groups. This is in contrast to LPG, which
is a preferred cooking fuel, and whose use correlates well with income. One
reason for this is that kerosene is often used as a backup cooking fuel to LPG and
biomass to meet gaps in supply availability, which does not necessarily depend
on income. Two underemphasized characteristics of kerosene use in households
are important in understanding the benefit incidence of subsidies: actual kerosene
market prices, and kerosene's use as a cooking fuel. These are discussed next,
along with how they affect subsidy benefits.
Kerosene markets
Households are supposed to purchase all their household kerosene needs through
the Public Distribution System (PDS). To use the PDS, households register
their household characteristics on ration cards, which indicate various eligibility
criteria, on the basis of which each household's quota is calculated, and in turn
48

each ration shop's aggregate quota is calculated based on the households allotted
to each shop. However, households in Maharashtra purchase over 40%, and in
urban areas over 50%, of their consumption from secondary (black) markets
For kerosene, unlike other subsidized products, households’ quotas are defined
based on their assumed reliance on kerosene for cooking, and not on their poverty
status.7 lighting needs are not included in the design of the quota. The quota
criteria include two household characteristics: the number of LPG cylinders, 8
and household size (See Appendix A). Households with two cylinders are not
entitled to kerosene. Households with one cylinder are entitled to 4 l per month.
The quota of households without any LPG cylinders increases with family size up
to a maximum of 15 l for most areas or 24 l in particular urban areas. Both
criteria, however, weakly correlate to income. Lower income households tend to
have fewer LPG cylinders and larger families. Thus, in principle, the kerosene
subsidy does have the potential to serve as a redistributive instrument, but an
imperfect one.
About 130 million l were allocated on a monthly basis to ration shops in
2004–05, of which about 129 million l on average were claimed for distribution.
9 A bottom-up aggregation of household quotas from NSSO0405 indicates that
118 million l ought to have been allocated. The discrepancy may reflect a margin
of error from using a sample survey to determine households’ eligibility criteria,
10 and the likely mismatch between households actual and recorded eligibility.
Regardless, as mentioned earlier, a large share of this allocation is diverted
upstream to third parties who sell kerosene to other markets and to households in
the black market. As a result, based on an aggregation of the sample in
NSSO0405, only 40 million l of the 118 million l of subsidized kerosene were
purchased by households through the PDS, and only 68 million l consumed by
households. Notably, in rural areas the quota (80 million l) is more than double
actual consumption, including black market purchases (37 million l). This
mismatch between the quota and actual demand encourages kerosene's diversion
to other markets
While this quantity diversion is well understood, the prices in these markets
have not been analyzed in literature. The market prices for kerosene vary widely,
but on average are double that of PDS kerosene. These prices are the lowest
alternate price most households would face should kerosene subsidies be lifted.11
More importantly, the PDS kerosene price that households actually pay also
varies widely, but only to a minority of households
49

About 5.6 million people in Maharashtra (13% of PDS kerosene users) bought
PDS kerosene at above Rs 12/l (higher than the highest intended price, including
transport and profit) in 2004–05. In many districts, prices are as much as double
the wholesale rate.
Kerosene as Primary Cooking Fuel in Urban Households
A neglected fact in subsidy analysis is that many urban households rely
exclusively on kerosene as a cooking fuel. In Maharashtra, about 12% of urban
households (1 million households, 4.5 million people) fall into this category. In
my primary survey, 33 (of 450) households, all slum dwellers, who did not have
access to wood and who stated they could not afford LPG, cooked exclusively
with kerosene. These circumstances may be commonplace among the urban poor
across India, particularly in large metropolitan areas.
These households on average use more kerosene than all kerosene users,
and therefore stand to benefit the most from kerosene subsidies.
Kerosene use as secondary cooking fuel
Even though the vast majority of rural households do use kerosene
primarily for lighting, kerosene use as a secondary cooking fuel is widespread
In urban Maharashtra, 10 million out of 18 million kerosene users use it
as a secondary cooking fuel. As mentioned, Maharashtra's household quota
allocation scheme is indeed based on household cooking needs. This group of
households not only would consume more kerosene than lighting users, but a
subset of them might also pay a different replacement price in the absence of
subsidies, namely LPG prices.
The distribution across income groups of kerosene use as a cooking fuel also
varies between urban and rural areas. These patterns are explained by their
relative reliance on LPG, which is more closely tied to kerosene usage. In rural
areas, kerosene use increases with income, since LPG use increases with income.
Among poorer households, kerosene is used as a backup to wood, albeit to a
lesser extent, when wood is unavailable (such as during monsoon), or too
expensive (where purchased).
In contrast, in urban areas, such secondary use is highest among lower and
middle income groups, but then decreases with income at the highest income
levels, as more households have two LPG cylinders or piped gas supply.
50

Drivers of kerosene use as a secondary cooking fuel
An important feature of kerosene's secondary use is that it is driven not
only by unreliable supply of households’ primary fuel, but also by the desire to
save fuel costs. Households for which kerosene is cheaper than LPG on useful
energy basis (“Economy Users”) use kerosene regardless of LPG availability.
Based on a heuristic to identify Economy Users (discussed in Section 3), there
are about 4 million such users in Maharashtra. One indication of this
phenomenon is that a large number of households use different fuels for cooking
and for water heating, regardless of their supply conditions. For example, in the
primary survey 60% of all households, and almost all low-income households,
use different fuels for cooking and water heating respectively, regardless of their
primary fuel. Many low-income urban households, particularly in Mumbai, use
LPG for cooking and kerosene for water heating.
The importance of the distinction between Economy Users and those
using kerosene due to insufficient LPG supply (“Last Resort Users”) is that the
former benefit less from subsidies, since they can switch back to LPG if cooking
with kerosene becomes more expensive. Note that some low-income households
who use kerosene because they would otherwise pay more for using wood may
switch back to wood if kerosene subsidies are removed. However, in
Maharashtra, this group was found to be negligibly small, and was therefore
omitted from the analysis.
It would seem that the margin of subsidy benefits for Economy Users is
small. For these households, the economics of cooking with LPG and kerosene
depend on their relative energy (rather than life cycle) costs, since these
households already own an LPG range and kerosene stove. A rough calculation of
the energy used for heating bath water shows that the total savings from using
subsidized kerosene in comparison to subsidized LPG may be up to Rs 30 per
month for a family of seven. This is less than a half a percent of poor households’
monthly expenditure. Such households may overestimate these savings, or
consider even such small savings worthwhile.

51

Households that cook with black-market kerosene pay approximately the
same fuel price as LPG (about Rs 22/kg on average in urban Maharashtra), which
implies they pay more on an energy basis than they do to cook with LPG (since
kerosene stoves are less efficient). This suggests that LPG users who buy black
market kerosene for cooking must also be Last Resort Users who lack reliable
access to LPG.
In summary, Economy Users may represent a minority of kerosene users.
However, the financial risk to them of removing subsidies is significantly less
than others, given the thin margins of savings from using subsidized kerosene
over LPG. To the extent possible, differentiating these households would be
important in calculating the distribution of subsidy benefits. Assessment of
subsidy performance in this section, I discuss the merits of kerosene subsidies as
a redistributive policy based on three measures: materiality; progressivity; and
efficacy. I first present the measurement approach and metrics. I then discuss the
results and the drivers of low efficacy. Measurement approach I first present the
method for calculating individual household benefits, in terms of budget share,
based on the categorization of kerosene users discussed in the previous section.
Based on these budget shares, I estimate progressivity and efficacy. Several
approaches have been used to assess the distributional benefits of subsidies to
households in other developing countries. A common approach is to compare
energy budgets with and without the subsidy (Dube, 2003; Kebede, 2006) for
different types of households. I use a similar approach to estimating materiality.
Dube (2003) compares households' willingness to pay to the price they would
pay without subsidies. However, this carries a hypothetical bias. Instead I use
market prices for substitutes to evaluate budget impacts. Saboohi (2001)
calculates Lorenz curves for energy subsidy benefits to assess progressivity.
Olivia and Gibson (2008) use an aggregate welfare measure that incorporates an
inequality aversion parameter. Both approaches capture equity in terms of
inequality, but not necessarily poverty impact. In order to capture the subsidy
benefits around an absolute poverty threshold, I use a Growth Incidence Curve,
as described below.
Previous studies that quantify the impact of subsidy diversions in India
focus on the quantity of subsidized kerosene that households actually receive. I
also account for the actual PDS kerosene price paid by households, which varies
significantly around the intended subsidized price.
Materiality
52

The value to households of the subsidy is a reduction in energy
expenditure, which enables more discretionary spending on other goods. In
contrast to prior studies that focus on mean benefit incidence for households in an
income decide, I calculate the benefit for different types of households based on
fuel choices, which affects the price they would pay with the subsidy's removal.
In particular, Economy Users would switch to LPG, while Last Resort would be
forced to continue using kerosene and pay black market prices.
Identifying Economy Users required a heuristic in the absence of data on
LPG reliability. Note that all households fall into the first category (including
primary cooking/lighting users), except for those select LPG users whose cost of
using subsidized kerosene is less than that of LPG in energy terms. The
prevailing relative prices of LPG and kerosene for a household were used as
proxies to identify this group. If households used kerosene as a supplemental fuel
even when LPG was cheaper on an energy basis, they presumably had fuel
availability issues. They are thus assumed to be Last Resort Users. If the LPG
price falls between the subsidized and black market price of kerosene, households
are assumed to be Economy Users.
The real income loss ΔI caused by the subsidy removal can be estimated as
follows for a given percentage change in the kerosene price, Δpk for the two
groups:
1. Last Resort Users (No Fuel Switch):
ΔI = Qk.pk− Qk(1 + Δpk⋅ηk)⋅pk (1 + Δpk)
2. Economy Users (Switch to LPG):
ΔI = Qk.pk−QLPG⋅ (1 + Δpk.ηklPG)pLPG
where ηk is the own-price elasticity for kerosene demand; ηkLPG is the
cross-price elasticity of LPG to a change in kerosene price; Qk and pk are the
original quantity and price of kerosene, and QLPG and pLPG are the original
quantity and price of LPG (all in energy units). Note that kerosene demand is
inelastic for last resort users, since cooking is an essential function. However, to
allow for some conservation a sensitivity analysis incorporates elasticity
Subsidy progressivity
Progressivity is an important metric for policies that have a wide impact. A
poverty index, for example, would not provide an indication of the relative
53

benefits between the poor and non-poor. Thus, a policy that reduces the poverty
gap can be regressive if it benefits middle income groups to a greater extent.
Such a policy could be an expensive instrument of redistribution.
I adapt a measure of ‘pro-poor’ growth used in the development economics
literature, which uses a ‘Growth Incidence Curve’ (GIC) to measure the extent to
which income growth accrues to the poor relative to what accrues to those above
poverty, as defined by some poverty threshold (Grosse et al., 2008)
Specifically, a variation of the GIC is constructed with the average income
percentage change for every population centile in order of increasing income. If
the slope of this curve is increasing (decreasing), the subsidy provides greater
(lesser) benefits to higher income groups on an individual household basis. In
aggregate, the average percentage change in income for all centiles (H) below the
threshold (μp) is compared to the average percentage change (μ) for the entire
population (n). The former would be higher for a progressive policy
Subsidy efficacy
One way to compare redistributive policies is to consider them as various
mechanisms for enabling a lump sum transfer to particular household groups. In
this vein, the efficacy would be the share of the total subsidy value that the
intended beneficiaries receive. The inverse of efficacy can be interpreted as the
cost per unit of income relief provided to the intended beneficiaries.
Data
All household expenditure and household fuel use data are drawn from the
NSS0405. Surveys show quantities and prices for all fuels, including both
subsidized and black market kerosene. No estimates are available for kerosene
cooking elasticity in India. There are only two known studies that estimate ownand cross-price elasticities of household fuels in India. . However, these estimates
are not appropriate in the current context for several reasons, primarily because
they measure substitution effects, which are not applicable to “last resort”
users.18 Since kerosene is a last resort and both cooking and lighting are essential
functions, demand ought to be inelastic. To be conservative, however, I test a
range of own-price elasticities of −0.1 to −0.25, and present results for the lower
figure. This is similar to the lower end of ranges for elasticities of residential
utilities that have few close substitutes (−0.39± 0.25 for electricity and
−0.38±0.22 for water). For similar reasons, the base case cross-price elasticity for
54

LPG was assumed to be 0.9. But for some conservation in the face of higher
kerosene prices, Economy Users would have no reason to shift less than the full
amount of cooking energy to LPG.
Subsidy performance results Here, I present the results of the analysis

Materiality
Among those spending less than $2/day in rural and urban areas, the average
income relief from the kerosene subsidy amounts to 0.3% and 0.5% of household
expenditure respectively. However, the benefits vary widely by income centiles,
from 0 to 1.3% of household expenditure. Further, almost 24% and 47% of the
rural and urban kerosene using population respectively receives benefits that
exceed 1% of total expenditure (Fig. 6). With an elasticity of −0.25, these figures
drop to 10 and 33%. Savings are highest in metropolitan urban areas, such as in
Mumbai, and in remote districts with limited LPG supply.
For instance, for the poor in District 1 – a remote district with 1.3 million
people – the savings on average is 1.7% of their monthly expenses, and over 5%
for those earning less than $1/day. Considering that the poorest urban households
spend over 10% of their income on energy (World Bank, 2003), this could double
their energy budgets in the worst case.
Among LPG (higher income) users, Last Resort users have an average
savings of 0.5%, while Economy Users have savings of 0.4%, with the reduction
being higher at upper middle income levels.
This finding has important implications for the relationship between LPG
and kerosene policies. The more liquid and reliable the LPG market, the less
upper income households would use kerosene. This would improve the
progressivity of kerosene subsidies, simply by altering market incentives. Note
that this finding is different from the conventional wisdom that LPG pricing
alone would influence kerosene use.
Progressivity
However, in urban areas, the subsidy is consistently progressive for the
entire population, using the same thresholds. The average income relief is 0.58%
for lower income groups, and 0.53% for middle income groups.
Policy efficacy
55

The efficacy of the kerosene subsidy (Eq. (5)) from the perspective of all
households is at best ~26.5%. That is, for every 100 Rupees of subsidy, only Rs
26.5 of income relief is delivered to households directly. The efficacy for
delivering income relief to those earning under $2/day is 17%. Thus, for every
rupee of income transferred to these poor, six rupees has to be spent by the
government.
The low efficacy reflects the fact that only 31.3% of the kerosene picked
up by wholesalers was delivered to households through the PDS in 2004–05,
based on NSSO0405. The difference of ~5 percentage points, between the
quantity (31.3) and benefit (26.5) shortfalls is attributable to price discrimination.
That is, households pay prices that include actual transport costs and rents in
addition to the wholesale subsidy price.
4.2 Kerosene subsidies and ideal implementation
The shortfall in the subsidy value that reaches households can be
attributed to design failures and implementation failures. For policy reformists,
this distinction would be important. Even under ideal implementation conditions,
a kerosene subsidy can only benefit kerosene users up to the use of their quota.
The mismatch between demand and the quota reflects the limits of the value of
the subsidy even under ideal implementation conditions (Fig. 8). The correlation
between household quotas and their usage was found to be only 22% in rural
areas, and 58% in urban areas, indicating that the quota design is better suited to
urban kerosene needs. Implementation failures, on the other hand, are reflected in
the fact that households purchase part of their entitled kerosene quotas in the
black market, or that they fail to obtain the intended subsidy price for the part of
the quota they do obtain. Indeed, 6.7 million of the 10 million urban dwellers in
Maharashtra who cook with kerosene purchase at least as much kerosene in the
black market as the shortfall in their quota. Both these types of failures and their
consequences for efficacy are discussed next.
Design failures
Most poor households do not claim their entitled share of subsidized
kerosene, as reflected in the gap between the average quota and total usage. This
is the case in rural areas across all income groups. As mentioned earlier, most
rural households cook with wood. Since the government allocates quotas based
on cooking needs, but rural households purchase PDS kerosene mostly for
lighting, rural households forego most of their quota. In urban households and
56

particularly metropolitan areas on the other hand, kerosene's use for cooking
aligns with the quota, except for where low-income households have access to
wood, as discussed earlier (Note that in Maharashtra I estimate cooking demand
to account for only 21% of kerosene demand in rural areas, but 61% in urban
areas, which is slightly higher than the national averages shown earlier).
At the same time, about a fifth of households in the lowest three deciles in
urban areas buy kerosene in excess of their quotas. This heterogeneity among the
urban poor stems from varying access to wood, as reflected in the fact that those
who forego their quotas consume on average about four times the quantity of
wood as those that consumer above their quotas. In rural areas, because kerosene
use increases with income, the share of households whose kerosene purchases
exceed their quota also increases with income.
Thus, the discrepancy between allocated quotas and demand reinforces the
difference in kerosene benefits between urban and rural areas. The progressivity
of subsidies would likely increase in urban areas from better targeted, and
potentially higher, quotas for kerosene subsidies. In rural areas, on the other
hand, the extent of unused quotas only provides incentives for their diversion to
other sectors.
The question then arises as to what the best attainable efficacy would be
under ‘ideal’ implementation conditions, given the design limitations. This is
discussed next.
Subsidy performance under ‘ideal’ implementation
Subsidy benefits in ideal implementation conditions entail that households
satisfy all their kerosene requirements through the PDS and at prices
corresponding to the intended subsidy price (including a legitimate distancesensitive transportation charge). The three metrics – materiality, progressivity and
efficacy – under ‘ideal’ implementation conditions are as follows.
If the subsidy were ideally implemented, its material impact would double.
For urban households earning under $2/day, the bane- fits would amount to 1.1%
(compared to 0.5% in practice).
What subsidized kerosene does reach households does not appear to have a
distributional bias compared to their ideal delivery, implying that income does
not seem to be a basis for denying households their quota.
57

With regard to efficacy, the share of subsidy value that would go to
households would increase to 39–46%, using a subsidy price (including
transportation) of Rs 11 and 10 per liter respectively.

4.3

PDS Kerosene (SKO)

Public Distribution System (PDS) Kerosene is an allocated and subsidized
product. It is distributed to the customers through the Public Distribution System
(PDS) network (Ration shop) of the State Governments / Union Territories (UT).
The quarterly allocation of PDS Kerosene to States / UTs is made by the Ministry
of Petroleum and Natural Gas (MOP&NG), Government of India. The quantity
of PDS Kerosene allocated per Ration card holder is decided by concerned State
Governments / UTs.
Information pertaining to supplies of PDS Kerosene to Kerosene dealers from all
HPCL supply locations is made available on this website on real time basis. This
proactive disclosure of supplies of this subsidized petroleum product ensures
transparency and enables citizens to be aware of actual supplies made by HPCL.
Salient features of the PDS Kerosene Dispatch Portal
A User friendly Portal has been developed for accessing PDS SKO dispatch
details. Salient features of the Portal are:

Universal access - No password required

Data for previous 60 days available for view. Use calendar to select date

Real time supply details to all dealers under the selected District can be
viewed

Option to select specific dealer using drop down menu also available

Option to view either by Invoice Date or Dealer name using Radio button

Data will be displayed for selected date and the previous 7 days
58

Details available: Dealer’s name and address, contact number, supply
location, invoice number, date and time, Dispatch quantity and Tank Truck
number.

Examining extent of kerosene diversion under PDS
Leakages may occur either due to losses during transportation or storage or as a
result of corrupt practices. States are allocated commodities as per their share
(allocation) — decided on the basis of past consumption trends and reported
number of Below Poverty Line (BPL) families - of which not all may get lifted
by the states (the quantity of food grain that is lifted by the states is known as
‘off-take’). In the case of food grains, leakages are defined as the percentage of
off-take not received by ration card holders.
For calculating kerosene leakages, we would need consumption data (what is
received by ration card holders) and off-take data. To compute the average per
capita purchase of kerosene, I use data from the 68th round of National Sample
Survey (NSS) pertaining to 2011-12.2 The off-take data for kerosene is not
available for the reference period, therefore allocation data is used. Data for other
years shows that off-take is generally 98% of allocation for most states and
hence, it is fine to use allocation data in lieu of off-take data 3. State-wise data on
allocation was obtained from two independent sources: one being a reply to a
question raised in the Lok Sabha and the other, a data portal, IndiaStat.com. Data
from the former source has been used for the analysis.
Consumption data from the NSS is from the agricultural year (July 2011 – June
2012) whereas the allocation data is for the fiscal year (April 2011 – March
2012). In order to adjust for this mismatch, the average of the kerosene allocation
data for the two fiscal years 2011-12 and 2012-13 has been taken. This averaging
would effectively normalise any abnormal fluctuation that may have come up.
At the all-India level we observe that the kerosene leakage is around 45% (Table
1). Figure 1 shows state-wise leakage rates for all states. Two states clearly stand
out. First, Tamil Nadu seems to be doing very well with 5% share in the total
PDS kerosene allocation and the lowest leakage rate of 23.3%. At the other
extreme is Delhi which records an exceptionally high leakage (close to 92%).
However, one needs to understand that Delhi has a meagre share (0.6%) in the
country’s total PDS kerosene allocation. Even if Delhi were to report a 100%
leakage, the absolute amount of kerosene lost would be nearly half of what Tamil
Nadu (with the lowest leakage rate) lost in 2011-12. Thus, it is important to look
at allocation and leakage figures together.

59

TABLE1. STATE-WISE KEROSENE ALLOCATION, PURCHASE AND LEAKAGES, 2011-12

60

Sources: (1) Allocation: Annexure referred to in reply to Parts (a) & (b) of the Lok Sabha Starred
Question No.270 for answer on 15.03.2013 regarding ‘Release of Kerosene Oil through PDS’ asked by
Shri Narendra Singh Tomar; (2) Purchase: Government of India (2014).

FIGURE1. PERCENTAGE OF LEAKAGE OF PDS KEROSENE IN INDIAN STATES

61

The total collective share of the so-called BIMARU (Bihar, Madhya Pradesh,
Rajasthan and Uttar Pradesh) states in allocations is 36%. Given that these states
are considered to be relatively poor and economically backward, and have a high
share in total allocation, it is important to take a close look at them. Interestingly,
their leakage rates range from 34-46%. Among these states, Bihar has the lowest
leakage rate (34%), well below the national average and second only to Tamil
Nadu. On the other hand, the estimate for Madhya Pradesh is almost 46%, close
to the national average.
An interesting contrast is the performance of the ‘daughter’ 5 states (Chhattisgarh,
Jharkhand and Uttarakhand) with the respective ‘parent’ states (Madhya Pradesh,
Bihar and Uttar Pradesh respectively). Do the daughter states do better? There
appears to be no pattern here, with Jharkhand doing worse than Bihar, whereas
the other new state doing better than their parent states.
The North Eastern states, get a small share of PDS kerosene allocation (just under
5%), but in per capita terms, allocation of kerosene (10.18 litres per capita) turns
out to be the highest in the country (the national average is 8.20 litres). The entire
North Eastern region, with the exception of Tripura, has high estimated leakages.
The average leakage of the North eastern states is 57.9%, which is much higher
than the national average.

Comparing kerosene and grain leakage under PDS
Finally, I plot PDS kerosene leakages against PDS food grain leakages in Figure
2 (taken from Khera 2014) to see whether the leakage patterns are the same
62

across commodities. At the all-India level it is observed that both leakages are
between 40% (for food grains) and 45% (for kerosene). Barring a few states
(undivided Uttar Pradesh, Rajasthan, Gujarat and West Bengal), kerosene leakage
is higher than food grain leakage. It is by now reasonably well known that in
some states, there has been an impressive turnaround in the PDS between 200405 and 2009-10. It would have been interesting to see if the reduction in
estimated leakage of food grain is also observed in the case of kerosene.
Unfortunately, since kerosene allocation data is not easily to obtain, I have not
been able to do so. Nevertheless, the estimate presented here could be considered
a start towards tracking kerosene leakages.
FIGURE2. COMPARISON OF KEROSENE AND FOOD GRAIN (RICE AND WHEAT) LEAKAGES

Chapter 5
63

5.1 Case study
Region leads in PDS distribution leakage
TNN | Feb 28, 2015,

GUWAHATI: The country's public distribution system (PDS) is anything but
leak-proof and, in the northeast, the percentage of leakage is highest in items like
kerosene, rice and wheat.
The economic survey 2014-15 tabled in Parliament by finance minister Arun
Jaitley states that the term leakage is used to describe subsidized goods that do
not reach any household and it also points to wastage and how these fiscal
resources could have been otherwise deployed.
The survey shows that in 2011-12, PDS kerosene allocations significantly
exceeded consumption in nearly every state. In other words, nearly all states
showed a large amount of PDS kerosene leakage. In terms of percentage, the
leakage of kerosene is 97% in Nagaland, 84% in Manipur, 80% in Sikkim, 76%
in Arunachal Pradesh and 70% in Meghalaya. The leakage of kerosene in Assam
is 54%, but the loss is as high as Rs 484 crore. The all-India percentage of PDS
kerosene leakage is 41%, amounting to a fiscal loss of Rs 10,000 crore.
Similarly, the leakage of PDS rice is 96% in Manipur, 91% in Nagaland and 27%
in Assam. The national leakage is 15%, which accounts for a loss of Rs 5,892
crore. In case of wheat distribution, too, the northeast leads with 100% leakage,
primarily in the rice-consuming states of Nagaland and Manipur, 99% in
Meghalaya, 97% in Sikkim, 96% in Assam, 91% in Arunachal Pradesh and 90%
in Mizoram.
The economic survey states that converting all subsidies into direct benefit
transfers is therefore a laudable goal of the government.

5.2 METHODOLOGY
1. THE SAMPLE
64

The present research is to be conducted on a sample of 10 prospective customers
and 10 distributers

Population: Our populations are distributer and customer of public distribution
system with special reference to kerosene in India.
Sample Size: We have used a small number of items or a small portion of a
population to draw conclusions regarding the whole population. Our sample size
is 20 respondents.
2. THE TOOLS FOR DATA COLLECTION
 Collection of Data
As there are several research techniques, there are a number of data
collection methods as well.
 Secondary Data- A secondary data is concerned with the analysis of
already existing data that is related to the research topic. We have gathered
data from books, journals, articles, through internet.
 Primary Data- Primary data is that data which is collected directly from
respondents using data collection methods like questionnaires, direct
observation, or charts.

We have collected primary data through

questionnaires.
 For the analysis of the data collected, various statistical tools as well as
browser software was used as per the requirements.

5.3 Tools for Data Collection
A pre-tested interview schedule covering all aspects of PDS was administered
among the respondents to elicit the needed information
65

Chapter 6
6.1 ANALYSIS AND INTERPRETATION
Questionnaire to distributer of PDS kerosene
1. From where do you obtain the kerosene?
66

Name of Number of
compan distributer
y
HP
6
BPCL

4

6
5
4

HP
BPCL

3
2
1
0
Name of company

INTERPRETATION: Above graph the majority of distributer Obtain
kerosene from HPCL Company. BPCL Company majority is low then
HPCL Company.

2. For how long are you having the company’s distributorship?
Years of
distributorship of
kerosene

Number of
distributer
67

1 or less then 1
1 to 3
3 to 5
More then 5

0
2
3
5

5
4.5
4
3.5
1 or less then 1

3

1 to 3

2.5

3 to 5

2

more then 5

1.5
1
0.5
0
years of distributership of kerosene

INTERPRETATION: Above graph majority of distributer having more
than 5 years of kerosene distributorship.

3. Are you having distribution network in whole Maharashtra?
Answer
YES

Number of
distributer
4

NO

6
68

6
5
4

YES
NO

3
2
1
0
ANSWER

INTERPRETATION: In Above graph the majority of the distributer said
No, they don’t have a distribution network in whole Maharashtra.

4. In monthly how many Loads the company gives you?
(1 load = 12000 Liter’s)
Number of
loads
kerosene
3-5

Number of
distributer
7
69

5-7

2

7-9

1

More then 9

0

7
6
5

3-5

4

5-7
7-9

3

more then 9

2
1
0
number of loads of kerosene

INTERPRETATION: the above graph the majority of distributer has 3-5
loads in month. In one load is equal to twelve thousand liters.

5. How many persons work on one vehicle of your agency distribution of
kerosene?
Numbers Numbers of
of persons distributer
1-5
8
More then 2
5
70

8
7
6
5

1-5

4

more then 5

3
2
1
0
number of persons

INTERPRETATION: the above graph majority of distributer has 1-5
number of persons work on one vehicle of agency distribution of kerosene.

6. How many retail shops should be distributed kerosene in one load?
Number
of shops
15-30
31-45
More then
45

Number of
distributer
4
5
1

71

5
4.5
4
3.5
15-30

3

31-45

2.5

more then 45

2
1.5
1
0.5
0
number of shops

INTERPRETATION: the above graph majority of distributer will distribute
PDS kerosene 31-45 shops in one load.

7. How much time does it take for delivery of kerosene from the company
ordering?
Time for
delivery
6-12 hrs
1-2 days
3-5 days
More then
5 days

Number of
distributer
0
7
3
0

72

7
6
5

6-12 hrs

4

1-2 days
3-5 days

3

more then 5 days

2
1
0
Time for delivery

INTERPRETATION: the above graph shown majority of 1to 2 days take
for distribute of one load of PDS kerosene.

8. Does the company give kerosene for distribution to different region for
distribute?
Answe
r
YES
NO

Number of
distributer
10
0

73

10
9
8
7
6
5
4
3
2
1
0

yes
no

Answer

INTERPRETATION: the above graph shown majority of YES. The
distributer will distribute PDS kerosene in different region in every month.

9. Are you satisfied with the profit margin you are getting?
Satisfie
d
YES
NO

Number of
distributer
3
7

74

7
6
5

Yes

4

No

3
2
1
0
Satisfied

INTERPRETATION: the above graph shown majority of NO. The most
distributer not satisfied with the profit margin the Public distribution
system will give.

10.Are you satisfied with distribution channel of kerosene?
Satisfie
d
YES
NO

Number of
distributer
9
1

Reason if No:-This distribution channel of PDS is taking a lot of time for
distribution.
75

9
8
7
6

yes

5

no

4
3
2
1
0
satisfied

INTERPRETATION: the above graph shown majority of YES. The
distributers are satisfied of distribution channel of PDS kerosene.

Questionnaire of customer of PDS kerosene
1. Doe’s you use kerosene for cooking food in your home?
Kerosen
e used
Yes
No

Number of
customer
10
0

76

10
9
8
7

Yes

6

No

5
4
3
2
1
0
kerosene used

INTERPRETATION: the above graph shown majority of YES. The most of
person are use kerosene for cooking in their home.

2. In monthly how many liters you get on ration card?
Liters of Number of
kerosen customer
e
1-4
8
77

5-8

2

More
then 8

0

8
7
6
1-4

5

5-8

4

more then 8

3
2
1
0
liters of kerosene

INTERPRETATION: the above graph shown majority of 1to 4 liters. The
ration card holder can get 1to 4 liters of kerosene under public distribution
system.

3. The shop keeper will give you kerosene in proper quantity?
Answe
r
choice
Yes

Number of
customer

No

7

3

78

7
6
5

yes

4

No

3
2
1
0
answer choice

INTERPRETATION: the above graph shown majority of NO. It means the
most shopkeepers will not give kerosene in proper quantity.

4. The fixed retail shops are conveniently located?
Option
Yes
No

Number of
customer
8
2

79

8
7
6
yes

5

no

4
3
2
1
0
option

INTERPRETATION: the above graph shown majority of YES. The fixed
retail shops are conveniently located at every area.

5. Are you Make a long queue for collecting kerosene at outside the shops?
Option
Yes

Number of
customer
7

No

3
80

7
6
5

Yes

4

No

3
2
1
0
option

INTERPRETATION: the above graph shown majority of YES. It means
the ration card holder make a long queue for collecting a kerosene.

6. The fixed shops are may appropriate your needs?
Option
Yes

Number of
customer
4

No

6

81

6
5
4

Yes
No

3
2
1
0
Option

INTERPRETATION: the above graph shown majority of NO. The
shopkeeper may not appropriate the consumer needs.

7. The Shopkeeper will give you kerosene in every month?
Option Number
of
customer
Yes
10
No

0
82

10
9
8
7

Yes

6

No

5
4
3
2
1
0
option

INTERPRETATION: the above graph shown majority of YES. The
shopkeeper gives PDS kerosene in every month to ration card holder.

8. Are you satisfied with the price of PDS kerosene you paid?
Option Number of
customer
Yes
6
No

4
83

6
5
4

Yes
No

3
2
1
0
option

INTERPRETATION: the above graph shown majority of YES. The most
consumers of PDS kerosene are satisfied the price of kerosene what they
pay.

9. Are you satisfied the distribution strategies of PDS kerosene?
Option Numbers of
customer
Yes
2
No

8
84

8
7
6

Yes

5

No

4
3
2
1
0
option

INTERPRETATION: the above graph shown majority of YES. The most
of consumer are satisfied to distribution strategies of PDS kerosene.

10.How would you rate the distribution system of PDS kerosene?
Rate of
distribution
Good

Numbers of
customer
3

Average

1

Excellent

0
85

Poor

5

5
4.5
4
3.5

good

3

average

2.5

excellent
poor

2
1.5
1
0.5
0
rate for distribution

INTERPRETATION: the above graph shown majority of poor in rate of
distribution system of PDS kerosene.

6.2 SWOT Analysis
A Mumbai Shahkari Ghaslet Vitran Sanstha (ltd.) carrying out a SWOT analysis
may find:
Strengths: We have 198 members and get subs from them.
Being small means we can adapt our program each year to meet our
member’s requests.
86

We have a simple budget process and decisions are made by a team
of four. We meet every two weeks so we can deal with matters
efficiently.
People like us and we are a friendly group.
We are small enough that we don’t have big overheads so we give
value for the subs.
Weaknesses: We are too small to be represented on Union Council.
We only have a few people on the committee so they have to work
very hard to do the minimum.
We tend to do the same things each year in the same way.
We didn’t have back-up, in other words we don’t have extra people
with time to cover if someone is off.
People don’t always pay promptly so we have cash issues
Opportunities: We have room to grow, we would benefit from recruiting more
members.
More members and a bigger organising committee could do more
events and thereby build the group.
More members mean larger budgets, more options for activities.
Threats:
leave.

If we change the way we do things too much the current group may
Some members say they like the small friendly nature of the group.

6.3 Findings
1.
2.
3.

Above graph the majority of distributer Obtain kerosene from HPCL
Company. BPCL Company majority is low then HPCL Company.
Above graph majority of distributer having more than five years of
kerosene distributorship.
In Above graph the majority of the distributer said No, they don’t have a
distribution network in whole Maharashtra.
87

The above graph the majority of distributer has 3-5 loads in month. In one
load is equal to twelve thousand liters.
5. The above graph majority of distributer has 1-5 number of persons work
on one vehicle of agency distribution of kerosene.
6. The above graph majority of distributer will distribute PDS kerosene 31-45
shops in one load.
7. The above graph shown majority of 1to 2 days take for distribute of one
load of PDS kerosene.
8. The above graph shown majority of YES. The distributer will distribute
PDS kerosene in different region in every month.
9. The above graph shown majority of NO. The most distributer not satisfied
with the profit margin the Public distribution system will give.
10. The above graph shown majority of YES. The distributers are satisfied of
distribution channel of PDS kerosene.
11.The above graph shown majority of YES. The most of person are use
kerosene for cooking in their home.
12.The above graph shown majority of 1to 4 liters. The ration card holder can
get 1to 4 liters of kerosene under public distribution system.
13. The above graph shown majority of NO. It means the most shopkeepers
will not give kerosene in proper quantity.
14. The above graph shown majority of YES. The fixed retail shops are
conveniently located at every area.
15. The above graph shown majority of YES. It means the ration card holder
make a long queue for collecting a kerosene.
16.The above graph shown majority of NO. The shopkeeper may not
appropriate the consumer needs.
17. The above graph shown majority of YES. The shopkeeper gives PDS
kerosene in every month to ration card holder.
18. The above graph shown majority of YES. The most consumers of PDS
kerosene are satisfied the price of kerosene what they pay.
19. The above graph shown majority of YES. The most of consumer are
satisfied to distribution strategies of PDS kerosene.
20. The above graph shown majority of poor in rate of distribution system of
PDS kerosene.
4.

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6.4 My learning experience
I have work in Mumbai Shahkari Ghaslet Vitran Sanstha (ltd.) for the period of
from May 2016 TO June 2016. As manage and supervision the work from the
office.
In that office I will learn and experience various things like manage, supervise,
time management, etc.

89

6.5 RECOMMENDATIONS
1. PDS has to be extended to cover families all over India.
2. Adoption of wage employment programmers should be
undertaken to liquidate the food stock and kerosene of
Food Corporation of India government has started various
programs to boost employment.
3. PDS has to be restructured, in order to solve the
paradoxical situation of the number of hunger ridden
people in the society & stock of excess food grain and
kerosene in the government warehouse.

90

6.6 Conclusion
The basic objective of Public Distribution System is to provide essential
consumer goods to the consumer at cheap & subsidized prices. Another important
objective is to maintain the minimum nutritional status of the population.
Families above poverty line have no incentives for them to purchase kerosene
from PDS. Computerized PDS has reduced the corruption. Core PDS has make
people easy access to the kerosene.

91

6.7 Annexure / Questionnaire
Questionnaire to distributer
NAME OF DISTRIBUTER:1. From where do you obtain the kerosene?(name of the company)
 HP
 BPCL
2. For how long are you having the company’s distributorship?
 One year or less
 One to three years

 Three to five years
 More than five years

3. Are you having distributer network in whole Maharashtra?
 YES

 NO

4. In monthly how many loads the company gives you?
5.

(1 load = 12000 liters)

 3-5

 7-9

 5-7

 More then 9

6. How many person works on one vehicle of your agency distribution of
kerosene?
 1-5

 More then 5

7. How many retail shops should be distributed kerosene in one load?
 15-30

 More then 45

 31-45
8. How much time does it take for delivery of kerosene from the company
ordering?
 6-12 hrs

 2-7 days

 1-2 days

 More than 7 days

92


9. Does the company give kerosene for distribution give different region for
distribute?
 Yes

 No

10.Are you satisfied with the profit margin you are getting?
 Yes

 No

11..Are you satisfied with distribution channel of kerosene?
 Yes

 No


Questionnaire with customers
 Name of customer: Address of customer:1. Do you use kerosene for cooking food in your home?
 Yes

 No

2. In monthly how many liters you get on ration card?
 1-4 liter

 More than 8 liter

 5-8 liter
3. The shop keeper will give you kerosene in proper quantity?
 Yes

 No

4. The fixed retail shops are conveniently located?
 Yes

 No

5. Are you making a long queue for collecting kerosene at outside the shops?
 Yes

 No

6. The fixed shops are may appropriate your needs?
93

 Yes

 No

7. Are you satisfied with the price of PDS kerosene you paid?
 Yes

 No

8. Are you satisfied the distribution strategies of PDS kerosene?
 Yes

 No

9. How would you rate the distribution system of PDS kerosene?
 Good

 Excellent

 Average

 Poor

10.The shop keepers give you kerosene in every month?
 Yes

 No


94

6.8 Bibliography
 Websites:
 www.hpcl.com
 www.bpcl.com
 www.hindutimes.in
 www.scribedin.com
 www.slideshare.in
 Bearing Point Inc. (2004, June 24). Revenue Enhancement Group
Report. Retrieved September 14, 2009 from:
http://georgia.usaid.gov/pdf/18.pdf.
 Encyclo (n.d.). “Import parity price.” Online Encyclopedia.
Retrieved on January 29, 2010, from
http://www.encyclo.co.uk/define/Import%20parity%20price.
 Government of India. (1980). Sixth Five Year Plan. Retrieved
January 28, 2010 from The National Planning Commission:
http://planningcommission.nic.in/plans/planrel/fiveyr/6th/welcome.
Html
 Petroleum Federation of India (2009, January). Strike When the Iron
is Hot: A thought leadership paper. Retrieved September 14, 2009
from: http://petrofed.winwinhosting.net/upload/TLP.pdf.